Market Overview

Key Developments

Northern Virginia's Tax Exemption Battle Ends Without Resolution as Prince William Restricts By-Right Approvals

The Virginia General Assembly's 2026 session produced no resolution on the fate of Northern Virginia's data center sales and use tax exemption, estimated at $1.6-1.9 billion in annual value and currently set to expire in 2035. The House advanced proposals conditioning the exemption on green credentials including no primary on-site fossil fuels, clean-energy matching, and diesel backup phase-outs. The Senate favored earlier repeal or phase-out without those conditions. The session adjourned on March 14 without agreement, deferring the exemption's fate to a special session beginning in late April. Incremental reforms did pass: mandatory impact assessments for projects exceeding 100 MW, stricter diesel generator standards, requirements for data centers to cover large-load infrastructure costs, improved water use transparency, and exploration of waste heat reuse programs. Prince William County's Board of Supervisors initiated a Zoning Text Amendment to end by-right data center approvals in the Data Center Opportunity Zone Overlay District, shifting future proposals to require rezoning and special use permits.

1Q 2026 Northern Virginia Development Activity:

• Serverfarm is entering the Virginia market by redeveloping two office properties at 7980 and 7990 Quantum Drive in Tysons Corner into the "Vienna Cloud" project, a combined ~316,000 sq ft data center campus replacing 1970s-era buildings
• George Washington University sold its 122-acre Virginia Science and Technology Campus in Ashburn to AWS for $427 million in early March 2026, with the deed allowing redevelopment into a data or information technology center
• PJM Interconnection the grid operator approved an $11.8 billion transmission expansion plan on February 12, 2026, under its 2025 Regional Transmission Expansion Plan (RTEP) Window 1, to address surging load growth from data centers

Key Developments

Monterey Park Pursues a Permanent Data Center Ban

Monterey Park's City Council voted in March 2026 to place a ballot measure on the June election that would permanently prohibit data centers within the city, amending the Monterey Park Municipal Code to ban all data centers citywide. The measure follows a 45-day moratorium enacted in January 2026 that placed HMC Capital's proposed development on hold. Los Angeles's data center activity has been shifting from the city itself toward industrial suburbs including Vernon and Monterey Park over the past year, driven by power availability and zoning flexibility in those communities.

The Monterey Park ballot measure represents an escalation beyond the time-limited moratoriums enacted elsewhere in 1Q 2026. A voter-approved permanent ban would be significantly more difficult to reverse than a council ordinance, and its passage in June would remove Monterey Park from the Los Angeles area's development geography entirely. The dynamics that drove operators from central Los Angeles toward Monterey Park and Vernon now face a different kind of constraint as community resistance follows the development activity. Vernon's attractiveness as an industrial zone with available power and permissive zoning is likely to increase if Monterey Park's ban passes, concentrating Los Angeles area data center activity more narrowly around that location.

41Q 2026 Los Angeles Market Activity:

• DataBank and Goodman Group have formed a joint venture to develop a new 32MW data center in Vernon, California. The facility is set to begin operations in late 2026 with the first 6MW phase

Key Developments

Ontario's Bill 40 Grid Connection Rules Take Effect, Establishing a Clearer Framework for Data Center Development

Ontario's Bill 40 passed and took effect in 1Q 2026, introducing new grid connection rules that shift the terms under which large-load users including data centers can access the provincial electricity grid. The legislation formalizes cost and process requirements for new large-load connections, building on the framework that was in proposal stage when covered in 4Q 2025. Toronto's data center market has been developing steadily as operators evaluate Canadian alternatives to constrained US markets, and the grid connection rule clarification provides a more defined regulatory environment for projects in the planning and permitting stages.

For Toronto specifically, the Bill 40 framework creates a clearer planning environment for operators who have been watching the regulatory situation develop. Canada's national AI compute program and the demand signals coming from US operators evaluating Canadian alternatives add urgency to Toronto's ability to deliver on its connectivity and power advantages, and the Bill 40 clarity is a necessary prerequisite for that delivery.

1Q 2026 Toronto Market Activity:

• Canadian Federal Government solicits proposals to build sovereign AI data centers 100 MW or larger
• Serverfarm acquires $3 billion USD credit facility to develop data centers in North America, including a 4 MW expansion at facility in Toronto
• Hypertec and Bell Business form partnership to deliver AI infrastructure
• Bell Canada is developing a fully-leased 300 MW data center in Sherwood Municipality in Saskatchewan with the first phase expected online the first half of 2027

Key Developments

KDDI leads the way with major D2C liquid cooling deployment. AI-driven expansion continues apace and investors remain active

After a rapid 6-month retrofit of a brownfield facility on the grounds of the former SHARP LCD plant in Sakai, KDDI launched a major deployment in January of D2C liquid cooled GB200 NVL72 racks to run Google’s generative AI model, Gemini. Other GPU deployments are expected in the coming quarters, as recently launched data centers – and those under construction here – are largely designed and equipped for D2C liquid cooling.

Multi-national operators and investors continue to show strong interest in Osaka. Although Osaka remains a distant number two to Tokyo in overall market capacity and attractiveness as a hyperscaler availability zone, the market dynamics of the AI era are solidifying interest in this vast, diverse urban region.

1Q 2026 Osaka Market Activity:

• CapitaLand Enters Japan with Osaka Data Center Stake Acquisition
• EdgeConneX Launches 200MW Osaka Data Center Campus
• KDDI Opens AI Data Center in Osaka