Water-Smart Siting: The Geography of Data Centre Expansion

For years, the data centre industry relied on a standard triad for site selection: cheap power, robust fibre and available land. 

Today, the explosive growth of high-density compute has introduced a fourth pillar to the location strategy of every major operator.

Welcome to the era of water-smart siting. 

Water-smart siting requires developers to evaluate municipal water capacities, local watershed health and long-term climate projections alongside standard feasibility studies.

The viability of a new campus heavily depends on whether the surrounding environment can sustain the facility's thermal management requirements without compromising existing community or agricultural needs.

As digital infrastructure spreads across the globe to support the AI boom, the industry is transitioning from purely power-driven location strategies to holistic ecological assessments – with water front-of-mind.

The AI factor: Exponential demand meets finite resources

The transition to water-smart siting is heavily accelerated by the specific thermal management requirements of AI. Training and running large language models requires ultra-dense server racks that generate immense heat. Keeping these servers at optimal temperatures traditionally relies on evaporative cooling systems which consume massive volumes of fresh water.

The resulting footprint is profound. Recent 2025 data from a study by researcher Alex de Vries at the VU Amsterdam Institute for Environmental Studies estimated that global AI systems consumed between 312.5 billion and 764.6 billion litres of water over the course of the year. Furthermore, the Brookings Institution projects that water used for data centre cooling could increase by a staggering 870% in the coming years as more high-density facilities come online.

This creates a complex paradox for the industry. AI is highly resource-intensive, yet it is simultaneously positioned as the key to solving complex global climate challenges. Melanie Nakagawa, Chief Sustainability Officer at Microsoft, highlighted this duality in 2025 when discussing the company's environmental strategy.

"AI is one of the most powerful tools we have at our disposal to develop and scale innovative solutions that can move the needle on addressing climate change and related Sustainable Development Goals," she noted on LinkedIn.

“We [Microsoft] remain committed to reducing the amount of water we use, replenishing water sources and are continuously looking for opportunities to do more,” she added in a separate statement, according to the New York Times.

To resolve this tension, operators must build the infrastructure that enables AI without depleting the natural resources it aims to protect.

Closed-loop innovation: Engineering a way out of scarcity

Decoupling digital expansion from local municipal water constraints requires fundamental shifts in mechanical engineering. Water-smart siting is not simply about avoiding deserts – it is about deploying the right technology for the right geography.

When operators do choose to build in water-stressed environments, they are increasingly abandoning traditional evaporative cooling in favour of advanced thermal management. By implementing direct-to-chip liquid cooling and closed-loop systems, facilities can operate with near-zero net water consumption.

Eric Schwartz, CEO of CyrusOne, recently outlined how this technological shift is paramount to the company’s expansion strategy, particularly in arid climates. Speaking on the company’s operational focus, he detailed the importance of moving away from consumptive cooling models.

"We are deeply committed to sustainability, with a focus on advancing our cooling technologies to reduce power and water consumption," Eric told Investment Reports in a 2025 interview. 

"Efficient cooling is essential not only for resource conservation but also to ensure optimal equipment performance, given the increasingly demanding requirements of today’s technology. 

“Our approach involves a blend of incremental improvements in efficiency and investment in next-generation cooling systems. 

“A notable initiative we’ve undertaken is our commitment to closed-loop cooling systems, which circulate water within the facility to transfer heat without evaporating it. This approach drastically minimises our water footprint, a critical factor in regions like Phoenix, Arizona. This system allows us to manage our water resources responsibly while still achieving the high-efficiency cooling necessary for our data centres.”

By keeping water trapped within a continuous loop rather than losing it to evaporation, operators can confidently site facilities in regions like the US Southwest or Southern Europe without exacerbating local droughts or competing with community drinking supplies.

Watershed positivity: From mitigation to ecological restoration

The most progressive application of water-smart siting moves entirely beyond mitigation. The ultimate objective within the industry's water strategy is to leave a local watershed demonstrably better off than it was before the data centre arrived.

“We combine our consumption reduction efforts with investment in water reclamation projects to protect the various watersheds,” said Eoin Doherty, Vice President of Cloud Operations + Innovation at Microsoft Europe, Middle East and Africa. “We see this as a way to help restore and protect the water resources where we operate.”

Rather than merely aiming for zero consumption, leading hyperscalers and colocation providers are striving to replenish more water than they withdraw. This involves deep integration with the local ecology during the site selection phase. Modern campuses are being designed with extensive rainwater harvesting systems, blue roofs and greywater recycling plants that process municipal wastewater for cooling purposes.

Furthermore, operators are tying their regional expansion to direct investments in community water infrastructure. This includes funding local wetland restoration, clearing invasive species that drain groundwater and upgrading ageing municipal pipe networks to reduce leakage.

Through these initiatives, water-smart siting transforms a data centre from a resource drain into an active participant in regional hydrology.

By acknowledging the geography of thirst, innovating cooling topologies and investing in watershed positivity, the digital infrastructure sector is proving that exponential growth does not have to come at the expense of the planet's most vital resource.