Data may live in the cloud, but it has to have a real home somewhere. That’s where data centers come in—and the market for them in Dallas-Fort Worth just took off like never before. So says a Q4 2021 market flash from Dallas-based commercial real estate giant CBRE.
The report, shared exclusively with Dallas Innovates, reveals the Dallas/Fort Worth data center market had a strong finish to 2021, “recording the most active quarter of leasing of all time.”
Several large leases signed by social media and financial services users—whose identities were not disclosed—drove the swell of activity in Q4. That led to “incredibly strong” net leasing activity for the full year, recording 80.52 megawatts (MW) in 2021, CBRE says.
“We’ve had a lot of influx in corporations that feel like they need to be here,” Brant Bernet, SVP of data centers at CBRE, told Dallas Innovates. “Some of the big hyper-scalers that really hadn’t been in Dallas have come to Dallas—or are coming to Dallas.”
Explosive growth seen elsewhere in U.S. too
Bernet noted that Dallas isn’t alone in seeing a booming data center market. Northern Virginia leasing has shown “absolute crazy growth,” he said, with around 360 MW of net leasing activity in 2021.
Locally, the momentum in Dallas-Fort Worth is clearly upward—and a sign of things to come, CBRE says.
“I think it bodes well for the the economy that folks are looking at Dallas,” Bernet said. “It’s also taken a lot of vacancy off the books.”
Key Q4 DFW data center numbers
The Dallas-Fort Worth data center market showed 17.59 MW of net absorption in Q4 2021, up 9.73 MW from Q3 2021.
Overall in 2021, the metro showed 28.99 MW in net absorption. Total inventory in Q4 was 538.06 MW, up 200 MW from Q3 2021.
75.75 MW were under construction in Q4, up a strong 52.25 MW from Q3 2021. Meanwhile, the vacancy rate in Q4 was at 11.44%, down 2.96 percentage points from Q3 2021.
The power rate behind all this ranged from $0.035 to $0.06.
Attracting ‘the biggest technology companies in the world’
CBRE’s Chris Herrmann, SVP of data centers, said social media companies and other big businesses are bringing their data center business to the region for many of the same reasons corporate America is moving its offices here.
“We also have the power infrastructure and the fiber infrastructure, the attributes to this area that could attract these companies,” Herrmann said. “Some of these are the biggest technology companies in the world, who are now focusing an eye on Dallas-Fort Worth and Texas that otherwise had not done in the last few years, and that’s good news as well.”
Herrmann notes that opening up the data center market to a wider geography footprint across the Dallas area has also increased the region’s attractiveness.
Inexpensive, clean power and location, location
“We’re right in the middle of the country,” Bernet added. “It’s easy to get here. Our power is inexpensive, and it’s clean. And it’s reliable, despite what you might hear about the Snowmageddon a year ago.”
Add the “really good tech workforce here,” and Bernet sees the region continuing its streak of being No. 2, 3, or 4 in the world in data center net positive absorption.
“We’ll continue to stay right in that mix,” he said.
Points to a growing tech sector for Dallas
CBRE data center associate Mikey Jaillet sees the data center market growth as a good sign for the local tech sector, too.
“A growing data center market continues to bode well for a growing tech sector for Dallas—which continues to improve and diversify our economy overall.”
“A growing data center market continues to bode well for a growing tech sector for Dallas—which continues to improve and diversify our economy overall,” Jaillet said.
Data center construction activity skyrockets
All that increased demand has led to “skyrocketing” construction activity, CBRE reports, with Compass (Red Oak), Flexential (Plano), DataBank (Plano), and Equinix (Dallas) all building out more space to meet the strong demand for data centers in the region.
Jaillet said some of the 80.52 MW in 2021 net leasing “will not even deliver until early 2023 most likely. So the future absorption pipeline, just due to this being under-construction space, looks incredibly healthy for the Dallas data center market going forward.”
Only ‘the early innings’ of market expansion
Bernet says there’s “no end in sight” to the expanding data center market.
“Our take on the Dallas data center market and in general worldwide is that we’re in the first or second, maybe third inning of an extra-inning type game.”
“Our take on the Dallas data center market and in general worldwide is that we’re in the first or second, maybe third inning of an extra-inning type game,” he said. “For sure, we see that trend continuing.”
Jaillet says while construction skyrocketed from Q3 2021, a lot of that is pre-leased. However, companies like Flexential and DataBank are building out more space speculatively.
“I think it’s because fundamentals for the Dallas market have improved, and they see that as an opportunity to hopefully capture more demand,” Jaillet said.
Cloud-using ‘power hogs’ are diving into local market
The Dallas data center market has been a large one “since really the inception of data center markets,” Jaillet said. “But we haven’t had a huge interest in cloud users.”
Then came the back half of Q4, when “hyper-scalers” started landing in the area.
“And we still have not seen large data center leases from some of those other cloud users as well,” Jaillet said. “So as those start to hit, you’ve got to think eventually the data center market will continue to increase.”
Some of those cloud users include unnamed “power hogs” of 10 MW or larger. Jaillet says there are around 10 “power hogs” in the Dallas-Fort Worth data center market at present, a number Bernet says is growing exponentially.
“This business has been around competitively for 13 years to get to 10,” Bernet said. “It won’t take 13 years to do another 10, that’s for sure.”
Tenant-friendly market may become a landlord’s market
For the last five years, the Dallas-Fort Worth data center market has been flat to downward. An overbuilt supply of data centers in the metro region led to “arguably the most tenant-friendly market in the United States,” CBRE says.
That may be about to change. After the Q4 leasing spike, few large blocks of contiguous data center space remain in the market.
“The data center business has not really experienced cycles like the typical real estate business has,” Bernet explained. “We overbuilt because it looked like a really good thing to do in Dallas. We and others started telling our clients, ‘You ought to look at Dallas because pricing is truly at an all-time low.'”
“And then all of a sudden you get all this energy and all these companies that are starting to look at Dallas, and it just starts that cycle. And so all of a sudden here we go back into a landlord’s type of market, for the first time in probably three years.”
“We’re not seeing an uptick in pricing yet,” Bernet noted. But because of basic economics and supply and demand, “it just makes sense that pricing will appreciate as we go forward.”
A turn toward a landlord’s market in Dallas-Fort Worth data centers could be about more than quickly tightening supply. Bernet also points to supply chain issues for delivering data center space “that continues to get pushed out and pushed out longer and longer. That makes it more expensive to deliver more space throughout 2022 and beyond.”
Average asking rates, market fuel mix
For Q4, average asking rates in the Dallas-Fort Worth data center market ranged from a minimum of $75 to a maximum of $100 for 5-10 MW. For 1 to 4 MW, rates ranged from $85 to $110. For 250-500 kW, the range was $100 to $140.
The market fuel mix was 52% natural gas, 23% renewables, 17% coal, and 8% nuclear.
‘An exciting time’
Prospective activity points to a continued robust demand pipeline into 2022 for data centers in the region, CBRE says.
With the record data center growth in Q4, the boom in construction, the sudden appearance of big social media companies and new financial services users on the scene and more, all three men at CBRE agreed on one thing.
“It’s an exciting time to be in the business,” Herrmann said.
Get on the list.
Dallas Innovates, every day.
Sign up to keep your eye on what’s new and next in Dallas-Fort Worth, every day.