CBRE Report: Central Texas Data Center Markets Remain Slow But Steady

CBRE Report: Central Texas Data Center Markets Remain Slow But Steady

April 15, 2019 The Central Texas data center market (primarily Austin and San Antonio), while small, remains steady overall according to CBRE’s latest U.S. Data Center Trends Report.

Austin’s data center supply primarily sits in the Met Center area, just west of Austin-Bergstrom International Airport. This data center market is made up of several large providers such as CyrusOne, Data Foundry and Digital Realty, along with some retail providers like LightEdge and Flexential.

On the other hand, San Antonio’s data center market is driven by one major cloud provider that has driven over 95 percent of the demand over the past three years.

According to CBRE’s U.S. Data Center Trends Report, these Central Texas markets closed 2018 with an overall vacancy rate of 4.5 percent with rental rates ranging between $140-155 for deals below 250 kilowatts (kW) of critical load. This is well above the national average of an 11 percent vacancy rate with rental rates of $120-140 per kW. In addition, demand continues to remain stable, with more than 4 megawatts (MW) of absorption in 2018.

“Austin and San Antonio continue to be on the cusp of greater growth due to all of the business development that is happening,” says Haynes Strader, Senior Associate, responsible for Texas market research on CBRE’s Data Center Solutions team. “Business growth here will ultimately lead to more growth in data centers, although most likely on the outskirts of Austin and San Antonio to best capitalize on lower power rates while still maintaining latency relevant proximity to the markets.”

National Trends

The seven primary U.S. data center markets saw 303 MW of net absorption in 2018, up more than 16 percent from 2017’s then-record total. That absorption nearly eclipsed the 322 MW of capacity added last year. Northern Virginia, the largest data center market in the world, accounted for 58 percent of net absorption in the primary markets. 

“We are closely watching supply and demand trends across the U.S. data center market in 2019 and beyond, particularly as data consumption—driven by the adoption of big-data analytics, 5G, gaming, streaming services, edge computing and the internet of things—continues to drive growth,” said Pat Lynch, senior managing director, Data Center Solutions, CBRE. “Meanwhile, we’ve seen robust construction activity as operators try to position themselves to rapidly deliver facilities within users’ often-tight schedules.”

Top 10 Most-Active Markets:

Market 2018 Absorption Market 2018 Absorption
Northern Virginia 175.5 MW Southern California 10.3 MW
Phoenix 41.6 MW Atlanta 8.2 MW
Dallas-Fort Worth 38.6 MW Boston 5.7 MW
Silicon Valley 25.1 MW Denver 4.7 MW
Chicago 10.7 MW Austin/San Antonio 4.1 MW

Strong demand has resulted in more than 500 MW of capacity under development in the primary U.S. markets, up significantly from the 228 MW underway at the end of 2017. Northern Virginia accounts for two-thirds of the current construction activity, primarily due to large requirements from cloud users. With 336.9 MW under construction, Northern Virginia’s pipeline is larger than the existing inventory of any U.S. data center market.

Other markets with significant construction activity include Phoenix, with 71.4 MW under construction at year end; Dallas-Fort Worth (37.4 MW); Houston (23 MW) and Atlanta (20.9 MW).

Capital Investment Trends 

North American data center investment volume reached $12 billion in 2018, inclusive of single-asset, portfolio and entity-level transactions. While investment was down from 2017’s record-setting $20 billion, this was largely due to limited North American entity-level investment opportunities compared to 2017. 

“The data center market will continue to evolve and adapt to the demands of today and tomorrow,” Mr. Lynch added. “We expect to see a continued influx of capital into the sector from new investors and infrastructure funds seeking to diversify their portfolios, as well as increased investment and expansion in global regions previously untapped by providers and cloud users.”


 

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