Greater Perspective: Data Centers
There is no dispute that the pandemic caused by COVID-19 has had a significant and far-reaching negative impact on the global economy, and that is no less true for the United States, the state of Maryland, and the Greater Baltimore region. However, as we have highlighted in previous newsletters, several of the Region’s strategic industries have realized opportunities advanced during the pandemic, most notably Logistics, BioHealth – particularly vaccine development and production – and Cybersecurity.
Add to this list an industry sector that is beginning to grow throughout Maryland, thanks in large part to legislation passed by the General Assembly in 2020 and signed into law by Governor Larry Hogan: Data Centers. Senate Bill 397 removed a major obstacle that kept the state from being able to compete with neighboring jurisdictions such as Northern Virginia, Pennsylvania and Delaware – all of which have seen explosive demand for data centers over the last decade.
Moving forward, SB 397 creates a new tax exemption in Maryland for the sale of qualified computer technology, including computer equipment, software, servers, routers, connections and other enabling hardware, for use at a qualified data center. To be eligible, a data center must invest money and create jobs in Maryland. Specific eligibility requirements, incentives and application information can be found here.
So what exactly is a data center, and what is driving the demand? As defined in SB 397, a data center is “…a building or group of buildings used to house computer systems, computer storage equipment and associated infrastructure that businesses or other organizations use to organize, process, store and disseminate large amounts of data” (read the full text of SB 397 here). The rapid pace of technological advances, no matter what the application might be, requires the need to store, manage, access and distribute increasingly large amounts of data.
Additionally, the growing acceptance of and reliance on cloud computing and its “location independence” is helping to fuel the demand for colocation data centers that serve multiple businesses. Though the growth of enterprise data centers will continue, whether in a separate facility or housed within a company’s facility, the challenges of doing business on the global stage and the explosion of ecommerce is resulting in a rethinking of how and where to store data.
The direct and indirect benefits of data centers were analyzed well before the arrival of COVID-19, such as this study done by Magnum for the Maryland Chamber Foundation. Historically, it had been difficult for Maryland to compete with neighboring jurisdictions where more favorable tax policies combined with other assets such an innovation-based economy and the presence of a highly-skilled workforce have led to years of exponential growth of data centers.
The passage of SB 397 was prescient as the impact of the COVID-19 pandemic expanded and deepened as 2020 progressed; an impact that has brought more focus for the need for colocation data centers. COVID-19 forced many workers, including IT, to work remotely. The purchasing of everything from food to household products to parts required for manufacturing and service establishments was now conducted online. Retail and wholesale establishments that didn’t already have an ecommerce platform quickly developed one, while “next-day/same-day delivery” demands fueled exponential growth in strategically located distribution and warehouse facilities to help address the disruption in supply chains that many businesses were experiencing due to the pandemic. Resiliency, flexibility and redundancy became the operative words in describing how businesses had to adjust in order to continue to operate. A company of any significant size will likely have multiple data centers, possibly in multiple regions. This gives the organization flexibility in how it backs up its information and protects against natural and man-made disasters such as floods, storms, terrorist threats and pandemics.
Primed with the new data center legislation, Greater Baltimore is poised to become a powerhouse in the data center industry with its many assets. A particular advantage is the availability of a robust, highly-skilled workforce. The adoption of cloud services is already creating the need for new skill sets among the workers who staff them. The presence of more data centers in the Region will also attract companies in other industries with significant reliance on storing and protecting their data, industries such as Cybersecurity, Logistics, Manufacturing and Life Sciences – the very industries that are already realizing the many advantages of locating in Greater Baltimore.