DFW Data Center Development Heads South As Surge Of Industrial Eats Up Available Land
August 16, 2022 | Olivia Lueckemeyer, Bisnow Dallas-Fort Worth
Counties south of Dallas will likely become the next frontier for data centers as a growing scarcity of land pushes development to the periphery of the Metroplex.
Demand for data centers in DFW has grown precipitously amid an influx of big tech companies taking down extraordinary amounts of space. Leasing activity at the midpoint of this year was 210 megawatts, far surpassing the previous full-year record of 81 megawatts, according to CBRE. At the same time, industrial development is at an all-time high, a trend experts say is adding to less available land for new data centers.
“We’ve seen unprecedented industrial growth,” said Ali Greenwood, an executive director in Cushman & Wakefield’s Global Data Center Advisory Group. “When you have all these people out there trying to tie up land and do industrial development … it’s extremely hard for data center developers to compete.”
The prerequisites to build a new data center are strikingly similar to that of industrial development, Greenwood said. Both asset classes need large, cost-effective parcels of land, but they also require access to roadway infrastructure — for industrial, to facilitate truck traffic, and for data centers, to access fiber.
“It’s hard to find land with power and fiber that is readily available,” Skybox Data Centers Chief Development Officer Haynes Strader said. “A lot of that is driven by the strength of the industrial market that we’ve seen in Dallas — you’ve just seen a lot of aggressive land plays, pushing south and east and west … that has limited the amount of land availability for data centers, and made it much harder to secure land.”
The industrial frenzy is prompting data center operators to look beyond the traditional markets of Plano, Richardson and Dallas, Greenwood said. The need for access to fiber, along with a string of high-profile hyperscalers announcing developments along Interstate 35, is giving cities within that corridor a leg up, Greenwood said.
“You’re going to see these hyperscalers hug 35,” she said. “The hyperscalers cluster together — it’s just what they’ve always done.”
Two years ago, Compass debuted its 252-megawatt, multiphase data center campus in Red Oak, an Ellis County city about 20 miles south of Dallas off I-35. Just east of Red Oak in Midlothian, Google recently completed the first phase of a $600M, 375-acre data center and quietly bought up another 165 acres of land for a second $600M data center, according to Cushman & Wakefield.
Waxahachie is not yet home to any data centers, but it has been shortlisted by hyperscalers looking for space, said Warren Ketteman, senior director of the Waxahachie Economic Development Center. The city not only straddles the fiber-rich I-35 corridor but also has several sites available at a relatively low cost compared to traditional markets.
“That sector is going to continue to grow, they’re going to need more and more room,” Ketteman said. “We do have some large parcels of land here in Waxahachie that would work well for data center development.”
In addition to cheaper land, smaller cities outside of Dallas’ urban core can offer developers a quicker turnaround on permitting and entitlement. Extensive lead times on building materials mean it now takes 18-36 months to get a new data center out of the ground, Greenwood said, so anything cities can do to cut down on the development timeline is hugely valuable to operators.
“Our turnaround time on land and permitting is rather quick,” Waxahachie’s Economic Development Coordinator Kassandra Carroll said. “It’s a matter of weeks, not months.”
There are challenges with developing in more rural areas of North Texas. For one, utility infrastructure is not as expansive as it is in the urban core, which could be an issue for a hyperscaler like Google or Meta. Accommodation of a large user in Waxahachie, Ketteman said, could require adding capacity to the city’s sewer treatment plants.
Zoning hurdles could also pose a challenge, especially for undeveloped cities that aren’t quite sure where they want to put data centers. On the other hand, Greenwood said, some growing cities are eager to greenlight data centers on sites that would normally be developed as industrial due to rising NIMBYism against heavy manufacturing and distribution facilities.
“[Industrial is] a lot of very low paying jobs, it’s a lot of trucks on the road, and it’s a lot of headache on the local community,” she said. “They’re starting to turn some of those projects down, which I think fares well for data center development in those areas.”
Ketteman said this is the case in Waxahachie, where industrial development has surged in recent years. Data centers are more palatable to the council and to the general public, he said, because they produce large amounts of revenue while putting little strain on city resources.
“We’re not against industrial, but going forward we want to be mindful of how we grow this community,” he said. “What’s it going to look like as our population continues to grow? So you have to balance all of those things.”
East of Waxahachie, the city of Kaufman is also actively pursuing data centers. While it is not located in the I-35 corridor, Kaufman has two available electric utility providers — Oncor and Trinity Valley Electric Corporation — and access to fiber via a high-capacity long-haul route that runs parallel to Highway 175. There are a handful of shovel-ready sites along that corridor that are zoned industrial and could be developed as data centers, Kaufman Economic Development Corp. Executive Director Stewart McGregor said.
“Being a small yet growing community, we’re still very much a nimble organization when it comes to getting projects done,” he said. “What you’re going to find out here is that we’re willing to work with you, help you jump through those hurdles and hold your hand through that process.”
It could be years before rural counties in DFW see a proliferation of data centers, but with the race for available land showing no signs of slowing, Strader said cities with an abundance of undeveloped sites are well-positioned to receive future development.
“When you look at the map, there’s not a lot of green to the north,” he said. “The reality is, [south is] where there’s land. That’s where you’re going to see groups start to go.”
Contact Olivia Lueckemeyer at firstname.lastname@example.org