Colorado sees more activity building power-intensive data centers

A hot trend in metro Denver’s real estate market is data centers, with people selling sites for the facilities and people developing the centers saying demand is outpacing supply.

Flexential, a Denver-based developer and operator of data centers, recently broke ground for a 22.5-megawatt center on 17 acres in Parker. The facility will be its largest in the metro area, adding to the company’s 42 centers across 19 markets in the U.S.

“In the last 24 months, there has been a significant increase in demand for data centers,” Flexential CEO Chris Downie said.

Jason White,a managing director with the Denver office of the JLL real estate firm, said various transactions are in the works and there are many inquiries about sites of more than 50 acres for new data centers. Companies are talking to area electric utilities about their ability to provide service to the power-intense facilities.

“I’m a party to six different transactions myself and obviously other brokers are working other deals around the metro area,” White said. “I think we’re going to start hearing of more and more transactions for large-scale data centers.”

A recent report by JLL said there’s potential for a significant increase in the number of data centers in the Denver and Colorado Springs areas because of the growth in the number of technology and artificial intelligence customers in the region.

The Data Center Map database shows about 40 centers in Colorado, stretching from Fort Collins to Colorado Springs. Most of them are in metro Denver.

Data centers house computers that keep the internet running. The market for colocation centers, where companies rent space for their computing equipment, has doubled in size in the last four years and vacancy in the centers is at a record low of 3%, according to JLL.

Large-scale data users such as Amazon, Meta and Microsoft are building campuses where several buildings that contain computer centers are clustered. Downie of Flexential said companies are looking at places like Colorado because the markets in Virginia and Silicon Valley have become saturated.

“Denver has been considered a secondary market, but it’s coming into its own as a great destination for this new demand,” Downie said.

While the Denver area has several of the attributes that make it a good market, the state overall is lacking a crucial element that could make it more attractive to “hyper-scale” projects, said Graham Williams, chief investment officer at Tract, a Denver-based data center developer. That element is some kind of state sales tax exemption for the facilities.

“Colorado is one of only 10 states that doesn’t have a sales tax exemption program of some sort for large-scale data centers. Data centers have intentionally moved their large-scale deployments to other states,” Williams said.

In the West, those states include Utah, Wyoming, Nevada and Arizona. Microsoft has a large campus in Cheyenne and Meta, owned by Facebook founder Mark Zuckerberg, is building a campus there, Williams said.

The construction and permanent jobs and property taxes associated with those large data centers are going to other states, he said.

“In our view, until Colorado changes its tax policy, it’s unlikely to take hold here in the state,” Williams said. “We’d love to be doing projects here, but that is the reason we’re focused on other states.”

Tract focuses on large-scale data centers. Williams said the company is in various stages of planning and developing facilities on just over 24,000 acres in 10 states.

The Colorado General Assembly rejected a bill in this year’s session that would have offered state sales and use tax rebates for construction materials and equipment for data centers starting in 2026. Sponsors said investing in projects such as data centers is crucial for the economy and that Colorado, considered a growing high-tech hub, is falling behind in attracting the facilities.