AI and Data Center Infrastructure Face Zoning Law Hurdles

President Donald Trump’s executive order, “Accelerating Federal Permitting of Data Center Infrastructure,” underscores the federal government’s recognition that securing US technological supremacy is a national priority. Local zoning and permitting regulations have hindered data center construction from keeping up with the soaring demand for artificial intelligence. Without fundamental regulatory reform, energy constraints and deal complexity will undermine both the current AI expansion and the coming quantum wave.

Traditional real estate legal frameworks buckle under the pressure of the unprecedented speed of the land grab for data centers and other critical infrastructure projects. McKinsey projects that global investment to scale AI data centers could hit $7 trillion by 2030. Yet the federal push for AI can’t fully capitalize on this potential when implementation stalls at the local level, anchored to commercial real estate timelines and regulations from the 1970s.

Escaping Zoning Labyrinths

Take Virginia as an example of this tension. Despite being a leading hub for data centers worldwide, the state lacks specific statewide provisions for them in its zoning regulations. Many local municipalities, responsible for enforcing these regulations, have no clear guidance on whether or how data centers should be permitted or categorized within the frameworks they have at their disposal.

When disputes inevitably arise, this lack of clarity prolongs the time spent in court, slowing down projects that require the lightning-fast level of execution AI companies desire to meet their eye-watering levels of demand.

In some instances, lawmakers have enforced regressive and reactionary measures, such as blanket moratoriums on new data centers in St. Louis, while they scramble to update ancient zoning frameworks. City of Peculiar, Mo., initially amended its zoning laws to allow data centers, and then reversed course after community opposition, leaving developers stranded and investors frustrated by the constantly moving goalposts.

For real estate attorneys advising data center developers, this means that engaging with communities and regulators at state and municipal levels must begin far earlier than traditional real estate projects require. Operating under the assumption that federal guidelines represent merely the baseline, clients should be prepared for slower implementation at the state levels as well as further delays due to public pushback.

Getting Creative

Unable to wait for reform, hyperscalers and smaller operators have resorted to creative workarounds. Adaptive reuse of existing structures offers one promising path for shortening construction runways—though the fact that such ingenuity is necessary highlights the urgency of regulatory reform.

Colossus, xAI’s supercomputer in Memphis, Tennessee, for example, was built into the site of an old Electrolux factory. Using the building’s existing 15 MW power capacity, later scaled to roughly 250 MW, as well as a fleet of mobile energy sources, the data center was up and running its 100,000 GPUs in just 122 days.

The Kinder Morgan building in Houston, Texas, for another, is an underutilized office tower transformed into a hybrid of office space and edge data center. Edge data centers are smaller than traditional ones and are locally placed to process information closer to the end user and their lower power requirements (1-20MW versus 100+MW for hyperscale data centers).

Existing buildings are viable candidates for these kinds of conversions and may provide faster routes for smaller and more agile projects that are becoming more ubiquitous across America.

Mitigating Policy Risks

It should be noted that the federal push for AI infrastructure comes with inherent risks, and history shows that federal policy shifts can dramatically affect infrastructure developments.

Learning from recent history, legal professionals working with the real estate industry can build resilience into data center projects at the early stage by pursuing diversified funding sources and reducing total reliance on federal programs. Further, because data centers aren’t only dependent on lump-sum federal infrastructure spending but also on local tax exemptions, clients should be advised to conduct enhanced due diligence and maintain a contingency plan at the local level.

The Coming Wave

The problems of scaling AI are growing even larger as the promise of a quantum computing revolution amplifies current challenges. Unlike AI data centers, which can be placed in rural locations far from urban conurbations and (somewhat) hidden from view, quantum facilities are likely to cluster near universities and research centers—cities such as Chicago, Boston, and New Haven, Connecticut—where they have access to the field’s leading academics and a specialized workforce.

Quantum computers need to be kept at near absolute-zero temperature and kitted out with electromagnetic shielding for stability—extreme operational conditions that are unprecedented outside of very specific facilities. If AI data centers test the “light industrial” designations in zoning now, quantum’s strain on them will be far greater.

For any technology to scale, it needs physical space to occupy. With the advancements in AI and quantum, real estate is transforming from a conventional asset class into a driver of national prosperity, and even a lever of national security.

In today’s global race for technological dominance, winners and losers are being established at an alarming pace. Lawyers advising these real estate projects should monitor not just federal initiatives but the granular details of local zoning evolution, and structure contracts with flexibility and modularity to react to regulatory shifts. Mastering these complexities will be the difference between winning the infrastructure deals of the next decade or being locked out of the coming tech wave entirely.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Will Pearce is CEO and co-founder of Orbital.

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