Here is proof that server location is an SEO ranking factor, right from the horse’s mouth, here’s the horse; I mean, Matt Cutts himself on the record explaining how they saw it in June 2009.
Can Server Geographic Location Affect SEO?
The location of the server can be interpreted by Google as a strong signal that that page or website is relevant to the country where it is located, so, for example, this site runs on a .co.uk domain and the server is located just outside London:
I also use Google Webmaster Tools where I can set the Geographical target for this site. So I’m pretty sure Google does know where I am and who I am trying to reach first and foremost, and that geographically speaking, is London and the UK, that’s also where Google Analytics say over 50% of my visitors come from for the blog and over 80% on the business content.
One more for the road in case you have any doubts still…
IP Location as a Local Ranking Factor
Impact of Server Proximity on Page Load Speed
The importance of page speed for SEO can’t be overstated, this has been a known ranking signal for some time (almost three years) but nothing makes it more so than our ever growing addiction to the mobile web, it may be in the order of the milliseconds the difference between receiving a page in London that is located in a London or UK server or a page served from the USA, but those milliseconds can quickly become seconds at peak traffic or in slower mobile devices.
And seconds simply mean the difference between loading the page within or outside many users patience thresholds, I speak for myself, I just can’t take blank screens or loading graphics. Googlers and Google’s obsession with speed are also well known and at the core of every design decision at the company, from the search algorithms all the way to the data centres.