By: Curt Holcomb
There’s never been this much data center development happening at once in DFW, ever. The demand for colocation space is at an all-time high, and enterprise companies are almost universally outsourcing their data centers to colocation providers in Dallas-Fort Worth and throughout the US. The growing concentration of corporate offices for Fortune 1000 companies has played a huge factor in attracting attention to DFW. This, coupled with a robust utility infrastructure, competitive electricity prices and an abundance of fiber from a large list of telecom carriers, make DFW a destination for data center users.
Bold M&A will disrupt the playing field—while raising barriers to entry for newcomers to join the game.
In Dallas, there are several colocation companies – Digital Realty Trust, Cyrus One, and DataBank – who are very active in the M&A (Mergers and Acquisitions) arena. DataBank recently raised significant capital for acquisition and expansion and has announced purchases of C7 Data Centers in Salt Lake City, as well as other acquisitions in Pittsburgh and Cleveland. The industry is being affected because the major locally-based and regional players are making acquisitions to expand their footprint and grow throughout the US. These providers are finding that their customers want data centers in multiple markets. Satisfying this need makes it easier to retain customers on a long-term basis. Expansion into additional markets will benefit the providers, their customers and facilities in DFW.
Data still needs a home—but cloud adoption is shifting which data centers host it, and where.
DFW is becoming a hub for cloud providers. Facebook is nearing completion of its one billion dollar investment in Hillwood’s Alliance development in Fort Worth. This data center will house their cloud infrastructure. IBM/Softlayer has a huge presence in Dallas, and we expect other cloud providers to have facilities in the market in the near future. The hub of Fortune 1000 companies, the fiber infrastructure, cost of power, the central location, and accessibility by way of two major airports provide a solid foundation for continued growth.
Retail pricing may be on the way out in 2017 and beyond, as wholesale pricing becomes ubiquitous.
For this market, wholesale offerings and pricing are becoming more of a standard as colocation companies look at changing their pricing structure. This shift from retail pricing to wholesale pricing will allow the colocation providers to be more competitive. Ultimately, this benefits the users by providing lower costs than before.
Investors will continue to clamor for data center REITs, for good reason.
In Dallas, we are seeing large investments from some of the largest data center REITs, including Equinix, Digital Realty Trust, QTS, and CyrusOne, as well as providers structured as privately held REITs. Data center REITs have historically posted above average returns, meaning they will continue the torrid pace of construction. This is evidenced by major developments in our market by those companies who continually invest money in the DFW area.
The future for the DFW Data Center market looks bright.
In 2017, the DFW Data Center market will continue its extensive expansion and collocation leasing. Forty Megawatts of absorption is well in the reach of our market for 2017, allowing DFW to meet or exceed the record set in 2015.
Curt Holcomb is Executive Vice President and Data Center Solutions Co-Lead at JLL.