In a Google Webmaster Help thread, Google's John Mueller said in response to the question of SEO and server location:
For search, specifically for geotargeting, the server's location plays
a very small role, in many cases it's irrelevant. If you use a ccTLD
or a gTLD together with Webmaster Tools, then we'll mainly use the
geotargeting from there, regardless of where your server is located.
You definitely don't need to host your website in any specific
geographic location -- use what works best for you, and give us that
information via a ccTLD or Webmaster Tools.
Q: Is the server location important for geotargeting?
A: If you can use one of the other means to set geotargeting (ccTLD or
Webmaster Tools’ geotargeting tool), you don’t need worry about the
server’s location. We do, however, recommend making sure that your
website is hosted in a way that will give your users fast access to it
(which is often done by choosing hosting near your users).
Server location does not matter much in SEO of a site, but choosing a server location near audience location is a good choice since response time is lower and it is even environment friendly.