The AI arms race has ignited a wave of data center development that is unlike anything the commercial real estate industry has seen before. Global demand is spiking, leasing volumes are hitting record highs, and major players are racing to secure land and power in every viable market. But the rush to build is running headfirst into a growing set of constraints. Energy infrastructure is straining, communities are pushing back, and the map of viable sites is narrowing, with some wondering if some of the demand is creating a bubble that will burst in the years to come when technology advances and less space is needed. In this article, we’re pulling back the curtain on how developers are navigating and overcoming the toughest site selection barriers.
A New Site Selection Reality
At a July roundtable hosted at Carnegie Mellon University, President Donald Trump and executives from Blackstone, Brookfield, Google, Exxon, and others announced more than $90 billion in new data center and power investments across Pennsylvania and beyond. Blackstone committed $25 billion to data center construction and energy infrastructure, while Google signed a deal to acquire up to 3,000 megawatts of carbon-free hydroelectric power from Brookfield. Also at the event, organized by Sen. Dave McCormick, Westinghouse pitched plans to build 10 nuclear reactors, starting in 2030. This came just weeks after the “One Big Beautiful Bill” Act eliminated renewable energy tax credits, creating fresh uncertainty across the power landscape.
But even with billions in capital, developers are running into physical and regulatory barriers that money alone can’t solve.
Manus Clancy, head of Data Strategy at LightBox, explained: “We’re watching a high-speed collision between infrastructure and ambition. Developers are coming to grips with the reality that power is no longer a utility issue but a market access issue.”
What emerges is a new site selection reality. One where zoning codes, substation maps, ESG compliance, and fiber routes now sit at the center of the decision-making process. LightBox analysts unpack the friction behind the boom and how CRE stakeholders are adapting their playbooks to keep pace.
Power Bottlenecks Are Redrawing the Map
Power has emerged as the single biggest constraint on data center development in 2025, with AI workloads pushing energy demand into uncharted territory. Electricity demand from AI-driven data centers could surge 30 times by 2035, fueled by high-density servers that exceed 40 kW per rack, according to a July 2025 Deloitte report.
That strain is already visible. Last July, 60 data centers in Northern Virginia (drawing as much power as a third of all Virginia households) dropped off the grid simultaneously due to voltage disturbances, triggering emergency responses from PJM Interconnection (which oversees electricity markets) and Dominion Energy to prevent broader blackouts. Since then, PJM and state regulators have flagged grid reliability as a critical constraint, prompting new standards and a broader rethinking of where large-scale digital infrastructure can safely be built.
To bypass years-long interconnection delays, many developers are turning to on-site power generation by building their own systems fueled by gas, hydrogen, or renewables. But even these solutions face headwinds. At a June 2025 Bisnow event, energy attorney Steven Shparber warned that fully engineered behind-the-meter systems can still be blocked by local utilities. At the same time, a recent Bloom Energy study projected that more than a quarter of new data centers will produce most of their power on-site by 2030, yet inconsistent regulations, long permitting cycles, and rising equipment costs continue to slow adoption.
To bypass congested grid territories, many developers are targeting secondary markets with faster access to power. Vantage Data Centers is investing $3 billion in a new AI campus outside Reno, where two of the four planned buildings are already leased. In Pennsylvania, CoreWeave is putting $6 billion behind a new facility as part of a broader AI infrastructure strategy, even as state regulators warn that grid capacity could become a bottleneck without private-sector investment. In Ohio, new regulations require data centers to pre-pay 85% of projected electricity costs before connecting to the grid, a policy shift designed to offload infrastructure risk from utilities to developers.
“Grid transparency has moved from a spreadsheet checkbox to a boardroom agenda item,” said Clancy. “If you can’t guarantee a gigawatt within three years, your site is already behind. The market is being defined by whoever solves for energy access first.”
Local Barriers Redefine Where Data Centers Can Be Built
Power constraints may dominate headlines, but local resistance is quickly becoming the more unpredictable threat to data center development. As hyperscale campuses scale up in both visibility and intensity, communities are pushing back harder and sooner. It’s no longer enough to bring capital and megawatts. Developers now need jurisdictional buy-in, zoning clarity, and a politically palatable footprint.
That shift came into focus in June 2025, when three large-scale projects across Virginia were halted or delayed. In Chesterfield County, Fauquier County, and the city of Chesapeake, local lawmakers moved to block or defer rezoning applications that would have enabled nearly 1,000 acres and more than 4.5 million square feet of new development, as reported by Bisnow. The concerns ranging from generator emissions to traffic congestion to rural land preservation weren’t new. But the speed and coordination of the resistance marked a turning point. “We need to slow this down,” said Fauquier Board Chair Chris Butler, summing up the political mood after a vote to postpone one of the region’s most closely watched cloud expansions.
The political friction isn’t confined to legacy data center markets. The Wall Street Journal reported that in West Virginia’s Tucker County, residents packed public meetings to oppose a proposed 1,000 MW gas-powered “AI” campus, citing environmental risks and quality-of-life impacts. And in Oldham County, Kentucky, a $6 billion hyperscale facility had to be scaled back and ultimately relocated after officials rejected a zoning change tied to a residential corridor. Even in fast-growing regions like Pinal County, Arizona, officials are voicing concern over proposals to rezone farmland for hyperscale use, raising red flags about long-term water access and infrastructure strain. One official described the current pace of development as “outpacing our regulatory imagination.”
Developers are adapting, but the ground keeps shifting. Some are modifying facility designs to decrease noise pollution, reduce water use, or adjust backup generator profiles to calm opposition before it escalates. Others are leaning on parcel-level intelligence to weed out jurisdictions with a history of moratoria or high entitlement risk before they even consider making an offer. Still, most approvals are granted on a case-by-case basis with no statewide consistency. That means even well-designed projects with community support can stall through months of zoning hearings, environmental reviews, and political negotiations.
“Land and zoning fit isn’t just about acreage or utilities,” noted Alan Hall, zoning expert at LightBox. “It’s about the pattern recognition of understanding how a jurisdiction has treated projects like yours. That’s where parcel-level intel and permitting history make a difference. If you don’t have that visibility up front, you’re building risk into the deal from day one.”
Looking Beyond the Map
Data center development is running into limits that can’t be solved with capital alone. Power and permitting are obvious challenges, but others are starting to constrain growth in quieter ways. In several high-growth markets, fiber access is either insufficient or too delayed to support AI-driven workloads. These constraints are shaping site viability before a deal even reaches underwriting.
“Data center developers can’t just analyze what’s above ground,” Hall emphasized. “The hidden layers of fiber access, entitlement history, political pushback will decide which sites move forward.”
In a future article, we will look at how gaps in network infrastructure affect data center site selection and what developers and investors can do to identify these risks early.
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