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How DFW Achieved Data Center Dominance

Corporate in-migration, an entrepreneurial culture, and a fast-growing market have propelled North Texas to the top in today’s data-rich economy.
| |Photography Courtesy of Shutterstock

At first glance, commercial data centers appear quite mundane—necessary, of course, but not worth deeper consideration. These facilities are typically sprawling, windowless buildings housing rows and rows of servers that tie together computer networks, manned by just a few workers who monitor the operations. But in North Texas, data centers deserve a spotlight.

Data centers are the private sector’s response to an explosion of data in America. Companies need a way to store and move all the information now available online, and the market has risen to the rescue with several types of data centers. The growth of the sector roughly mirrors the nation’s population and business activity, but Texas, led by DFW, stands out as a magnet. 

In this fast-growing industry, business models vary. Enterprise data centers are owned by single organizations to support their own needs. This works best for the biggest companies in the tech sector and beyond. Hyperscale data centers, which cost $1 billion or more to build and equip, provide the infrastructure for cloud computing. These facilities are owned and equipped by companies like Amazon, Google, Microsoft, Meta, and IBM. 

Hyperscale operations exist in DFW, but the region’s niche is colocation data centers. These provide a server-friendly environment and rent space to companies that install their own servers and other network equipment. According to industry data, the DFW area led all U.S. metropolitan areas with 103 colocation data centers.

North Texas’ data centers are sprinkled around Dallas and its suburbs, with a notable concentration in the Infomart, a building along Stemmons Freeway with a fiber optic capacity that places it among the most digitally connected places in the world.           

Data centers need customers, and DFW offers a strong demand for information services. In addition to Fortune 500 headquarters, the region’s corporate base includes a vibrant tech sector and major aviation, finance, and energy firms. Corporate in-migration, an entrepreneurial culture and a fast-growing economy promise an expanding customer base for a long time to come. 

On the supply side, data centers need spacious, secure buildings, water to help keep the equipment from overheating, and electricity to run power-guzzling servers 24/7. 

So, how do the region’s land, electricity, and water costs stack up among the 20 metropolitan areas with the most colocation data centers? DFW has the seventh-cheapest land—but it’s not far behind the first six. Land is nearly twice as expensive in Boston and progressively higher until it hits 14 times DFW in Silicon Valley.

The region ranks sixth in water prices, trailing No. 1 Chicago by $2.90 per 1,000 gallons. Looking at the eight most expensive metropolitan areas, DFW has an advantage per 1,000 gallons of $6 (Tampa) to $20 (Seattle). DFW and Houston have the lowest electricity rates in the top metro areas. As with land and water, the most significant cost burdens are at the bottom of the rankings. Electricity costs twice as much in New York than in DFW.

Land is a one-time fixed cost, so operational expenses are where the money is made. Based on national averages, we found that a typical data center consumes electricity at a ratio of 7.6 times water; in short, electricity dominates. Using this ratio and local utility rates, DFW emerges as No. 1 in terms of metropolitan areas’ data center cost competitiveness. 

DFW’s water and electricity edge over the rest of the 20 metropolitan areas starts at 13 percent for Columbus and rises to 44 percent for Atlanta. Then it balloons to 90 percent for New York, 117 percent for Boston, 138 percent for Los Angeles, and 140 percent for Silicon Valley.

DFW’s demand for data centers will continue to grow because a thriving private sector will keep churning out more and more data. Data center projects already underway or announced indicate the region’s supply will be racing to catch the demand. It may have a tough time catching it.  

W. Michael Cox is professor of economics in the Bridwell Institute for Economic Freedom at Southern Methodist University’s Cox School of Business. Richard Alm is writer-in-residence at the Bridwell Institute. 


W. Michael Cox and Richard Alm

W. Michael Cox and Richard Alm