Data Center Demand Expected to Push Southern California Boom

The data center market in Southern California appears poised for a surge of growth as artificial intelligence needs will require more computing facilities.

With just 335 megawatts of capacity, SoCal ranks among the smallest data center markets in North America, dwarfed by northern Virginia, the Pacific Northwest and the Dallas–Fort Worth metroplex, but that footprint is expected to nearly double in the next few years as new facilities come online to meet user demand in the area, Commercial Observer reported, citing new research from JLL.

Under California law, backup generators used by data centers are classified as thermal power plants, putting projects over 50 megawatts under the authority of the California Energy Commission and adding state-level oversight to local zoning restrictions. Projects between 50 and 100 megawatts can seek a Small Power Plant Exemption, but if denied, they face a full certification process, environmental review and formal hearings, which in some cases can derail projects or scare away developers that don’t want to deal with years of delays and millions in predevelopment costs.

Developers are sizing projects just under 50 or 100 megawatts to avoid the toughest government scrutiny, Darren Eades, senior managing director at JLL, told Commercial Observer. Goodman Group, for example, is planning a 49.5-megawatt facility, known as LAX01, in Vernon.

“California just makes it a challenge,” Eades said. “We’re ranked probably 50th of all the states in approval processes and getting data centers done… The state’s losing billions of dollars to surrounding states and all over the nation just due to those constraints.”

The cost of powering these data centers is another reason some operators might shy away from the Golden State. At roughly 18 cents per kilowatt-hour, California’s average electricity rate is more than double that of Texas and northern Virginia and well above the Pacific Northwest’s 10-cent average, per JLL. In lower-cost markets like Dallas–Fort Worth, projects are approved quickly, saving developers both time and money.

The demand for space, especially in the country’s most populous state, remains pronounced. Nationwide vacancy is just 1 percent, and some California lawmakers are pursuing legislative efforts to meet the moment, largely focusing on oversight processes and cost containment. State Sen. Steve Padilla has proposed Senate Bill 58, which would offer partial sales and use tax exemptions for data center projects that incorporate sustainable energy practices.

Despite feasibility hurdles, data center growth in Southern California will seemingly become necessary with the explosion of AI technology. How the state and local governments choose to respond to the demand for space remains to be seen.

— Chris Malone Méndez