Artificial intelligence, cloud computing, and digital infrastructure are driving unprecedented demand for data centers across the United States. From hyperscale campuses supporting major technology companies to regional facilities powering cloud applications, developers are actively seeking land that can support the next generation of digital infrastructure.
As data center development accelerates, many landowners are receiving inquiries from developers interested in purchasing their property. While communities continue to debate the benefits and challenges of these projects, the demand for strategically located land continues to grow. For some property owners, these offers represent a unique opportunity to unlock significant value from land that has been held for decades.
Understanding why developers are targeting certain locations and how a sale may create opportunities to defer capital gains taxes, and other taxes, through a 1031 exchange can help landowners make informed decisions and preserve more of their investment proceeds for future real estate investments.
Accelerating Demand for Data Center Development in the US
The demand for data center infrastructure continues to grow at a rapid pace. Industry estimates suggest that hundreds of data center projects are currently planned or under development throughout the United States, driven largely by artificial intelligence, cloud computing, and increased data consumption.
Major technology companies and data center operators are investing billions of dollars to secure sites capable of supporting facilities that require substantial power capacity, fiber connectivity, and room for future expansion. While not every announced project will ultimately be built, the overall development pipeline remains historically strong.
What Makes a Site Attractive for Data Center Development?
Not every parcel of land is suitable for a data center. Developers evaluate sites based on several critical factors, including:
- Access to significant electrical power capacity
- Proximity to transmission lines and substations
- Availability of high-speed fiber connectivity
- Adequate water resources for cooling systems
- Large contiguous acreage for development and expansion
- Favorable zoning and permitting conditions
- Access to transportation infrastructure
- Low risk of flooding, wildfires, or other natural disasters
Among these factors, power availability has become the most important consideration. In many markets, developers are prioritizing sites where electrical infrastructure can support large-scale operations within a reasonable timeframe.
Where Are Developers Looking?
While Northern Virginia remains the nation’s largest data center market, developers are increasingly targeting regions that offer a combination of available power, land, and connectivity.
Some of the most active markets include:
- Dallas-Fort Worth, Texas
- Atlanta, Georgia
- Phoenix, Arizona
- Columbus, Ohio
- Kansas City, Missouri
- Salt Lake City, Utah
- Northern Virginia
Emerging rural markets throughout Texas, Georgia, Kansas, and the Midwest
In many cases, developers are expanding beyond traditional metropolitan areas and pursuing large rural properties located near transmission infrastructure and fiber networks.
Why Landowners May Consider Selling to a Data Center Developer
For many property owners, selling to a data center developer can provide significantly greater value than selling to a traditional land buyer.
While many landowners would prefer to continue farming or hold land for future generations, rising operating costs, labor shortages, succession challenges, and changing market conditions can make that increasingly difficult. In many cases, the next generation has little interest in continuing agricultural operations, prompting families to explore alternatives that better support their long-term financial goals.
Data center developers are often willing to pay premium prices for sites with access to critical infrastructure such as power and fiber because they are purchasing the property’s development potential—not simply the land itself. As a result, these properties may be worth substantially more than they would be to traditional agricultural buyers or investors.
For many, selling to a data center developer offers an opportunity to:
- Receive an attractive purchase price
- Support retirement or succession planning
- Address estate settlement needs
- Transition away from agricultural operations
- Diversify wealth into other investment opportunities
- Capitalize on a unique buyer market for large tracts of land
For some families, a data center transaction represents a once-in-a-generation liquidity event—providing the financial flexibility to pursue new opportunities while preserving and transferring wealth for future generations.
The Reality of Data Center Growth in the US
The rapid expansion of artificial intelligence and data center infrastructure has sparked debate across the country. Some communities welcome the economic development and investment, while others raise concerns about power consumption, water usage, and land use changes.
This article is not intended to advocate for or against data center development. The reality is that demand for digital infrastructure continues to grow, and hundreds of data center projects are planned or under development throughout the United States. As a result, many landowners are receiving offers from developers seeking strategically located property.
For landowners considering a sale, the more important question is not whether data centers should be built, but how to make the most of the opportunity if they choose to sell. Property owners who decide to move forward with a transaction should understand the potential tax implications and explore whether a 1031 exchange may allow them to defer capital gain and other taxes and preserve more of their investment proceeds for future real estate investments.
Data Center Land Sales Qualify for a 1031 Exchange
One important consideration for landowners is that the sale of investment or business-use real estate may qualify for tax deferral through a 1031 exchange and all vacant land qualifies for a 1031 exchange.
A properly structured 1031 exchange allows investors to defer applicable taxes associated with the sale of real estate including capital gains, depreciation recapture, state and net investment income tax by reinvesting proceeds into other qualifying real estate. Rather than immediately recognizing taxable gain from a land sale, owners may preserve more of their equity for future investment opportunities.
For landowners who have held property for many years and have a low tax basis, the tax savings associated with a 1031 exchange can be significant. In addition, if an Exchanger passes away while still vested with a property received as part of an exchange, the heirs receive a stepped-up basis, effectively eliminating the prior deferred taxes.
Many Landowners Are Transitioning Into Passive Real Estate Investments
Increasingly, landowners who sell property for development are using 1031 exchanges to transition from active land ownership into passive real estate investments.
Common replacement property options include:
- Triple-net lease (NNN) properties
- Delaware Statutory Trusts (DSTs)
- Multifamily properties
- Industrial real estate
For those seeking reduced management responsibilities, NNN properties and DST investments have become particularly popular. These structures can provide access to professionally managed real estate while preserving the tax-deferred benefits of a 1031 exchange.
Planning Ahead Can Help Preserve More Wealth
As demand for data center development continues to expand across the United States, more landowners may find themselves evaluating offers from developers seeking strategically located sites.
Whether the goal is retirement planning, estate planning, diversification, or transitioning from active property management to passive real estate ownership, understanding the potential tax implications of a sale is critical. By exploring 1031 exchange options before closing a transaction, landowners may be able to defer taxes, preserve investment capital, and reposition their real estate holdings to better support long-term financial objectives.
If you own investment or business-use real estate and are considering a sale, it’s important to evaluate your 1031 exchange options before closing. Accruit’s experienced exchange professionals work with Exchangers and their trusted advisors to help structure tax-deferred exchanges that preserve more equity for future real estate investments. Contact us to discuss your transaction and determine whether a 1031 exchange may be right for your situation.