Data center demand soars to record levels

Exploding demand for data center space has pushed North Texas leasing to a record level.

Developers are rushing to get new Dallas-Fort Worth data centers on line as net leasing of the tech facilities in 2023 was seven times the rate in 2020, according to a new report by commercial real estate firm Cushman Wakefield. Last year, 386 megawatts of data center space was absorbed in the area.

Less than 4% of current data center space in D-FW was vacant at the end of the year.

D-FW is America’s second-largest data center market, behind only Northern Virginia.

“Data centers are the backbone of our economy and daily lives, from cloud computing that supports remote work and collaboration to ever-present mobile devices and social media,” Ali Greenwood, Cushman Wakefield executive director, said in the report. “With continued, strong growth on the horizon, the D-FW market will continue to be a leader in the data center sector but not without challenges, especially around utility constraints.”

Another 1.4 million square feet of data center space is under construction in North Texas, Cushman Wakefield estimates. And most of what’s under construction has already been leased.

Driving the demand is the growing use of cloud computing and rapid adoption of artificial intelligence and machine learning.

“Data centers are currently the strongest performing asset class in commercial real estate, with billions of dollars of institutional and private capital allocated for new development and investment,” said Bo Bond, Cushman Wakefield executive managing director. “Even though permitting and development is a complex process, with the demand locally and globally, we can’t build data centers fast enough.

“Dallas-Fort Worth will capture more than its share of that investment, with the largest concentration of new development in the southern sector of the region,” he said.

Oncor, the region’s electricity delivery utility, announced a huge investment to “meet the demands for cloud, AI and machine learning technologies where other utility providers across the country are falling short,” Bond said.

Data centers are the most profitable commercial property sector. Developed data centers averaged an almost 30% return in 2023, according to a new report by the real estate investment trust industry.

Several major data center projects are under construction in North Texas.

Dallas-based Databank Inc. is planning a $280 million, 265,000-squarefoot expansion of its Plano data center at 8735 Dominion Parkway, according to planning documents filed with the state.

Skybox Datacenters and developer Bandera Ventures are building a data center campus on 100 acres in Lancaster near Interstate 35E.

Addison-based Compass Datacenters is adding to its more than 500acre data center campus near Interstate 35E in Red Oak.

In August, Google announced plans for a more than $600 million data center in Red Oak, south of Dallas. The first phase of that project will be about 285,000 square feet.