Data-center developers chase power into frontier markets

The data-center development market has reached a limit, and that limit is electrical.

JLL's Midyear North America Data Center Report — first covered by Connect CRE — says developers are looking beyond Northern Virginia, Chicago, and Columbus. Power constraints are stretching delivery timelines. The report gives the secondary regions absorbing the overflow a name: frontier markets. They now hold 77% of capacity under construction.

Sean Farney, JLL's vice president of data center strategy, told Connect CRE that utilities are steering developers toward co-located generation, on-site battery storage, and microgrids — though microgrids are still under regulatory scrutiny. Direct partnerships with utilities are becoming more common. None of that makes the interconnection queue move quickly. Farney points to new Commonwealth Edison projects in Chicago with four- to five-year delivery timelines. They also carry letter-of-credit commitments of roughly $46,000 per megawatt annually for a decade.

The power problem is not evenly distributed. In Columbus, Ohio, grid limitations are pushing users to Van Wert, Lima, and Canton — smaller cities with available capacity. Southern Virginia and the I-95 corridor are picking up projects that might once have landed in Loudoun or Prince William counties. Electricity is not the only attraction: these markets bring builder-friendly regulation, land for large campuses, lower operating costs, and room to expand.

For private real estate capital, the priority has inverted. Development equity and debt that once flowed to Northern Virginia, Chicago, and Columbus must now underwrite power availability first. Frontier markets offer lower land costs and faster timelines, but long-term liquidity is another matter. A data center in Van Wert, Ohio, can generate strong yield while the power lasts; the exit market is thinner than Ashburn's.

Farney sees the spillover as permanent. "While the spillover accelerates development, the scale of investment and structural advantages indicate permanent geographic transformation of the industry," he told Connect CRE. Investors underwriting 10-year holds should care. If the shift is permanent, frontier-market data centers become core infrastructure rather than opportunistic bets.

The economic effect on host communities is substantial. Farney estimates state and local tax revenue in states like New York at $100 million to $200 million for large developments, on top of high-paying construction, engineering, and IT jobs. In a small municipality, one campus can transform the tax base; that argument carries weight.

The counterweight is organized opposition. Farney says JLL has seen a significant uptick in organized opposition and scrutiny over the past six months. The report also found 79% of respondents flagging community or regulatory pushback. Frontier markets come with power and land, but many of their communities have no experience with data centers. The NIMBY fight that took years in Northern Virginia is now being re-run in Canton and Van Wert.

Power has become the limiting factor in data-center deployment, and capital moves to where electricity is available. Towns that can pair available power with community acceptance will capture the next wave of construction. Those that cannot will watch it land somewhere they once dismissed as too peripheral.

Chicago shows why developers leave. A four- to five-year interconnection timeline is one reason. Add a decade of letter-of-credit commitments at roughly $46,000 per megawatt annually, and the cost becomes something most frontier markets do not impose. Take a 100-megawatt campus. The credit-support tab alone would be $4.6 million a year, before a single server is installed.

That math explains the construction pipeline. According to JLL, 77% of capacity under construction is in frontier markets. No debt provider can ignore it. A loan secured by a data center in a frontier market carries different refinancing risk than one in a primary hub; the lender's view of power reliability and exit liquidity sets the spread.

The report's finding that 79% of respondents flagged community opposition or regulatory issues — per Connect CRE's account — points to a political problem as much as an electrical one. Developers need power, but they also need approval. The two don't always overlap.