The Dallas data center market continues to grow but at a slower pace than previous years.
According to a study by JLL, the slowdown is due to the oversupply of data center space and the inability for the market to absorb so much capacity. In a listing by JLL, the North Texas region ranks seventh nationally in facility construction, of that, Dallas and nearby Fort Worth rank fifth in planned capacity, with just 31MW.
As a result of the slow down, there has been an increase in competition between data center companies. JLL found that pricing in Dallas has continued to drop, year-on-year, as several operators have had to lower their prices ‘significantly’ due to the sparsity of tenants.
Buyer's market
First reported by The Dallas Morning News, in the first half of 2020, only 156,200 sq ft (14,511 sq m) of new data center space was under construction with 1.4 million sq ft (130,000 sq m) of data center space planned.
JLL analysts said: “Supply in Dallas, Fort Worth, (D-FW) continues to increase, but at a much slower pace than in recent years. Pricing in D-FW continues to drop, as several operators have lowered their asking rents significantly in the last year. Ample supply and lower pricing will attract more enterprise users to evaluate the D-FW market. Lower growth in supply may help stabilize rates at existing levels.”
Northern Virginia tops the chart with 3.9 million sq ft (362,321 sq m) of data center space currently being built with Northern California’s 1.4 million sq ft (130,000 sq m) coming in second.
According to the market’s supply, Dallas enjoys around 3.9 million sq ft and 580MW in total inventory. However, around 640,000 sq ft and 82MW of data center space are unused and vacant – causing providers to ease off their growth as they need to rent out unused space before committing to anything further.
However, the JLL report states that the data center industry is still going strong with overall returns of 19.2 percent compared with 2.3 percent for industrial buildings and losses for all other property sectors. “While data centers' resiliency, reliability, and manned operations have been tested during the pandemic, it is one of the few sectors that performed strongly in the first half of 2020,” analysts said.
Too much space, too few tenants
Last year, CBRE told DCD about the company's concerns surrounding the slowdown it was seeing in 2019, also due to an oversupply. "We've got a long way to go to get to a healthier absorption that would balance supply," Haynes Strader, CBRE senior associate of data center solutions, said at the time.
Brant Bernet, CBRE’s SVP of data center solutions, concurred: “Historically for the last five years we’ve done that 40MW of positive absorption. And we typically build about 40MW of data center space a year. So the market's been in parity.
“What happened this year, is that not only are we having a weird, slow year in the Dallas market for some reason, [but we also] built 49-50MW of brand new space. Both sides of the pendulum went the wrong way.”
Despite the slowdown, the data center market in Dallas is still seeing new investment, with Compass acquiring land for a second campus last year, and the Infomart building seeing continued expansion from Equinix and Cologix.
