CRE Opinion: Why Data Center Users Choose Texas
North Texas boasts some of the nation’s lowest power costs, contributing to making it one of the fastest growing markets in the country.
BY MICHAEL LAHOUD PUBLISHED IN COMMERCIAL REAL ESTATE MARCH 20, 2017 11:12 AM
The Texas Data Center Market
The Texas data center market historically attracts a steady amount of data center demand, but over the past several years, activity has exceeded expectations. Its central U.S. location, skilled workforce, and tax incentives available for data center users are strong reasons why companies find the state attractive for their IT infrastructure. Data center growth occurs in Texas for many of the same reasons companies flourish in the pro-business state, which is proven by the 54 Fortune 500 companies currently calling Texas home. The majority of the state’s electric capacity is managed by ERCOT (Electric Reliability Council of Texas), which provides reliable and robust power delivery. Coupled with the strong economy and impressive GDP growth, Texas is well positioned to win data center projects for years to come.
A Closer Look at the Top Texas Data Center Markets
Dallas is considered either the second or third largest data center market in the United States (opinions vary) and the largest in Texas. The area boasts some of the nation’s lowest power costs. Current market conditions allow for long-term energy contracts with all-in rates below $0.05 per kWh. Add to this, the connectivity available and an economic climate that is favorable for business growth, and it’s not surprising to see DFW as one of the fastest growing markets in the country. The demand for data center space comes in a variety of sizes, including small to mid-size businesses seeking single-cabinet leases, as well as global companies needing large amounts of space and power. A recent trend in Dallas is the construction of data center shell facilities. This approach allows data center operators to accommodate demand in a timely manner, while preserving capital.
DFW’s data center market originated in and around Dallas’ central business district due to the rich telecommunication infrastructure put in place by some of the original Internet companies. This led to several buildings being retrofitted to accommodate data center users (e.g. Infomart Dallas, 2323 Bryan, among others). Today, these buildings act as interconnection hubs for some of the largest consumers of data center space in the world. North Texas cities such as Richardson, Plano, and Carrollton benefited from the growth by offering sites and buildings with expansion opportunities. In addition, most colocation providers in the DFW market are choosing to construct new facilities instead of retrofitting existing buildings worthy of conversion.
Over the last several years, corporations like Toyota, State Farm, Pizza Hut, and J.P. Morgan Chase established large office locations in surrounding suburbs north of Dallas. Many data center operators responded to the growth of these enterprises by building or expanding campuses within close proximity (Plano, Richardson, Garland, and Frisco), ensuring these companies would have access to robust data center facilities.
Although Fort Worth has not historically seen the demand of Dallas, Facebook’s decision to deploy approximately 750,000 square feet of data center space in 2015 is certainly worth mentioning. Based on announced expansion, the campus is projected to be as large as 2.5 million square feet with a price tag of $1 billion.
Houston’s primary economic growth engine is the energy industry, which has contributed in past years to data center growth in this market. Despite the recent energy industry decline and its impact on data center demand, the market remains healthy from these companies altering their IT strategies. Companies that would have historically leveraged capital dollars to build their own facilities are more inclined to lease space from the quality mix of data center providers with capacity in Houston. Furthermore, Houston’s evolving healthcare market is fueling additional demand from organizations interested in outsourcing their company’s IT infrastructure.
San Antonio’s economic environment helps accelerate data center opportunities in the city, as the business-friendly economy is rooted in numerous industries, including aerospace/aviation, bioscience/healthcare, financial services, manufacturing, military/defense, and technology. The significant San Antonio data center development activity occurs in Westover Hills, a suburb northwest of the city. The robust infrastructures, reasonable power cost, and low-risk of natural disasters attract organizations seeking economically viable data center solutions. Companies such as Microsoft, Frost Bank, and government agencies all have a data center presence in this area. San Antonio’s graywater recycling system, a program that helps reduce water consumption, was one of the key reasons Microsoft selected the city for the company’s central Texas data center.
With a low unemployment rate and increasing job growth, Austin attracts data center users for reasons different than Dallas, Houston, and San Antonio. Austin is also a growing tech hub for both large enterprises and startups, which appeals to data center users with smaller IT requirements (less than 500kW). The city, centrally located in the state, provides a low-risk of natural disasters. Most colocation providers choose to locate in the Met Center business park in Southeast Austin. With more than 500-acres of land, this area serves as an ideal location for data center operators interested in attracting companies with infrastructure needs.
The traditional data center market in Texas continues to shift to meet the growing demand for data center services, creating increased opportunities for new and existing providers, along with pricing pressure to maintain a favorable industry position. The rise in demand also shows that companies are more frequently trading in their on-premise technology operations for outsourced services from data center providers.
Michael Lahoud is a senior vice president at Stream Data Centers.