Quick Absorption Of DFW’s Data Center Supply Keeps The Market In Balance

Dallas-Fort Worth’s corporate activity is in high-speed growth mode, and that means hunger for data centers, which function as the hidden arteries companies rely on to process and store data. 

Fortunately for DFW businesses, a strong pipeline of new product and continuous absorption activity have kept the area's supply and demand for data center space well-balanced. 

“Dallas had very low vacancies in 2014 and 2015 and that prompted a wave of [data center] development, DataBank included, that brought on inventory in 2016 and 2017,” DataBank CEO Raul Martynek said. “And, now we are kind of chipping away at that inventory. So, I think right now Dallas is well-supplied.”

Dallas-Fort Worth recorded 40.2 megawatts of data center net absorption in 2018, and a strong 43 MW in 2017, according to JLL data. 

“That's a big number, something we haven't really seen for a few years,” Digital Realty Vice President of Portfolio Management Bryan Marsh said. 

Meanwhile, total inventory under construction in 2018 hit 34.7 MW, or 190K SF, with another 187.8 MW, or 1.1M SF, in planned supply and a total vacancy of 79.2 MW, or 562K SF, JLL said in a report.  

“There’s plenty of supply right now,” said Marsh, who is speaking alongside Martynek at Bisnow's DICE South conference June 27 in Dallas. “I would say [supply] is pretty much in balance with the market.”

Martynek also feels confident the DFW market will not face any shortfalls or imbalances when it comes to data center supply and demand. 

“I think the market is well-supplied,” Martynek said. “If you look at the JLL report and the CBRE report, they show an abundance of supply in the marketplace, and I think that’s fine. Dallas historically had absorbed somewhere between 25 and 35 megawatts per year of capacity, so I think 2018 was a period where we probably had a little bit too much supply in the marketplace, and now it’s starting to get consumed.” 

JLL noted that a slew of businesses started to move their data from on-campus single-user data centers to multi-tenant facilities, increasing demand for data center developers.

DFW got a boost in organic growth from existing customers expanding their data center needs last year, JLL said. The market also has appeal beyond its borders as one of the strongest data center markets in the U.S. and as a pro-business environment.

DFW is one the U.S.’ primary wholesale data center markets. Together the top markets in the U.S. (DFW, Phoenix, Northern Virginia, Silicon Valley, Chicago, Southern California and Atlanta) clocked a record 303 MW of net absorption last year, up 16% year over year, while their combined supply pipeline under development surged to more than 500 MW, CBRE said in a report. 

“Certainly we don’t see any change in terms of the long-term trend of enterprises and content players across the country looking at Dallas as one of the key markets that they need to be in,” Martynek said. “We call Dallas a destination market. People all across the country want to place workloads here in Dallas, and we don’t see that changing whatsoever.”

Data Center Companies Hunt For Land That Offers Long-Term Scalability

The concept of data companies acquiring land to expand their footprints over time is not foreign to DFW. And in the Metroplex, larger players are much more likely to acquire space with the long-term goal of expanding their data operations on the same parcel over time, essentially land banking for future growth.

“The most recent site we bought was 22 acres in Garland and that's the largest site that we've developed in the Dallas-Fort Worth Metroplex to date,” Stream Data Centers Executive Vice President and partner Anthony Bolner said. Bolner is also speaking at DICE South. “It's hard to find 20-plus acres that are located with proximity to the right utility power with the right connectivity and the right adjacency to comparable uses.”

But Bolner said when a provider does find the right land, it is more likely to choose a site where the company can increase data space in increments by building on the same land as demand grows, necessitating the release of more space.

“I think here in the Dallas market, you have providers who are buying larger pieces of data center land to give them the ability to develop and operate larger data centers and to really offer customers the ability to scale over time.”

You can learn more about data center demand and activity in the sector at Bisnow's 2019 DICE South Conference on June 27.