Demand For DFW Data Centers Continues To Boom Even As Other Assets Falter

In an era when the commercial property sector in DFW is facing a wave of turmoil, data centers are once again offering a glimmer of hope.

Halfway through 2023, demand for data centers remains high, with 75 megawatts of leases transacted so far this year, according to new data from Cushman & Wakefield. Only 263K SF of the market’s 4.4M SF total supply is available, which is driving elevated rents and utility costs.

The market has been playing catch-up for many months now as technological advancement and consumption requires more data center storage than ever before, said Ali Greenwood, a Dallas-based executive director on Cushman & Wakefield’s global data center team.

Just last week, Meta launched Threads, a new social media platform akin to Twitter, and the acceleration of artificial intelligence is also putting more pressure on the market. 

“Data center real estate is tied to technology, and we continue every single day to consume and produce more technology,” Greenwood said. “You’ve got a couple of new drivers that are coming into play.”

Strong demand is insulating data centers from some of the underwriting challenges faced by other asset types, Greenwood said. Investors with money to spend are increasingly viewing data centers as a safe place to deploy capital. 

“We’re seeing a tremendous amount of dollars flow through this asset class right now,” Greenwood said. 

The need for more data center space exploded last year as an influx of hyperscalers like Google and Amazon flooded the market. By the midpoint of 2022, DFW had absorbed nearly 287 megawatts of power, roughly five times the amount absorbed by the market on an annual basis historically, and about 17 times the 16.54 megawatts absorbed at the midpoint of the year prior, Cushman & Wakefield found.

Absorption so far this year is much lower, but it’s still outpacing the Metroplex’s historical average of between 40MW and 60 MW per year. The slowdown in the first half of 2023 isn’t due to fewer operators looking for space, but instead reflects the more than 24 months it takes to get new data centers up and running.

“Last year was just so off the charts, I think we will come in a little under, as will every other market,” Greenwood said. “That isn’t for lack of demand, that’s for lack of ability to deliver supply.”

The more than 864K SF in the pipeline is already promised to tenants, per Cushman & Wakefield’s report. South Dallas is attracting the most demand, Greenwood said, due to its large blocks of developable land that have faster access to power than other areas.

“You’re going to see several other [operators] announce land acquisitions in the South Dallas market for large-scale data center developments,” Greenwood said. “The ultimate end users are very likely to be large cloud technology companies or newly forming AI companies.” 

One of the few remaining large blocks of space was leased by an AI cloud computing company in the first half of 2023, and more are likely on the way, Greenwood said. AI servers require more water, she added, which means existing campuses would have to be modified to serve that type of user. 

“You’re going to see [developers] take existing data center facilities and retrofit them to the best of their ability to make it work, and you’re going to see some form purpose-built data centers to accommodate AI applications going forward,” she said.

The lack of readily available power in some areas is a headwind for data center development, but Oncor is actively building new substations to address the need, Greenwood said. In the meantime, there will continue to be a race for space and a scramble to get more product on the ground.

“Over the next three to five years in DFW, you’re going to see a lot of new campus developments and new land sites taken down,” Greenwood said. “Which will be good — we need the supply.”