Austin-San Antonio Sees "Above Average" Activity in Data Center Development

AUSTIN–The Austin-San Antonio market saw above historical average activity in data center development in the first half of 2018, according to CBRE’s latest US Data Center Trends Report.

Much of the market demand is coming from large, hyperscale users offering a mixture of internet cloud exchanges, the report says. Large expansions plus an increase in smaller wholesale deployments is largely behind the activity, according to CBRE.

Specifically, Austin and San Antonio added 9.8 megawatts of in the first half of 2018, with eight megawatts under construction to meet demand. Despite the new supply, the market’s vacancy rate dropped 130 basis points year-over-year to 8.1%.

The San Antonio market is largely dependent upon large cloud requirements, which have driven more than 90 percent of the overall leasing activity in the market in recent years. One large cloud provider makes up nearly all the demand in that city, Haynes Strader, senior associate on CBRE’s Data Center Solutions team, tells GlobeSt.com.

The Austin market is driven by a combination of state entities, local startups and several large technology companies. Indeed, a number of large technology companies such as Amazon, Facebook, Apple, Cisco Systems have a presence in the Texas capital.

“The Austin market is seeing a record number of technology companies growing locally, and most of those companies have accompanying data center requirements… (this) has created a healthy environment for continued growth,” Strader says.

There are large swaths of land outside of the regulated power market (served by Austin Energy) that could be developed and have the potential to drive interest for significantly larger data center requirements due to lower costs, adds Strader.

“While it’s cheaper to build data centers in Austin than say, California, it’s the most expensive Texas market with Dallas and Houston being significantly less because of land and power costs. Deregulated power markets just outside of Austin are also more likely to attract a user that is cost-sensitive,” says Brant Bernet, senior vice president leading the Data Center Solutions team for CBRE in Texas.

Both San Antonio and Austin have low hazard risks and serve as disaster recovery locations for some of Texas’ key production loads, he adds.

Nationally, demand from large cloud users has set the U.S. data center market on pace to break 2017’s record leasing activity, the CBRE report also found. The market saw more than 177 megawatts (MW) of net absorption in H1 2018, already nearly two-thirds of last year’s annual record net absorption total, despite the delivery of significant new supply.