Houston Data Center Construction Volume Surges to Record High in 2021

Houston data center construction volume reached an all-time high as North American data center leasing reached record levels in 2021, according to a new report from CBRE.

Demand from a large social media company in Houston drove a surge in the market’s data center construction pipeline to 46 megawatts (MW) at year-end – nearly four times the year-end 2020 total of 9.3 MW. However, the right-sizing of energy company footprints in response to industry cost-control pressures drove a decline last year in the market’s leasing activity by 191 percent to -3.4 MW of net absorption. The market’s vacancy rate increased by 552 basis points to 28.4 percent in 2021.

The market remains attractive for data center operators despite slower leasing activity, with 78.4 percent of new construction preleased and a brightening outlook for the healthcare and energy sectors. The region’s power rates are also among the lowest in North America. The Houston market is positioned for growth in the coming years as data center providers expand from low-vacancy, expensive primary markets into more affordable secondary and tertiary markets with more land and power availability.

“Houston data center market activity increased toward the end of 2021, with the signing of the largest lease in the market’s history attracting more interest from providers,” said Mikey Jaillet, Associate, Data Center Solutions, CBRE. “With the region’s low barriers to market entry, we expect growing energy and health tech investment to drive future demand in Houston.”

National Trends

CBRE’s latest North American Data Center Trends Report shows that there was 493.4 MW of net absorption in the seven primary U.S. data center markets in 2021, a 31 percent increase over 2019’s then-record level, and up 50 percent from 2020.

Despite a 17 percent year-over-year increase in primary-market inventory, vacancy fell to just 7.2 percent. Occupiers in need of data center capacity in markets with low vacancy should see more options in 2022 with 727.6 MW of facilities under construction. However, 44 percent of this space has been preleased.

Power-delivery challenges will continue to affect the pace of new construction. The migration to secondary and tertiary markets likely will increase in coming years, as limited space and power threaten to increase costs in supply-constrained primary markets.

“We expect continued strong data center demand from cloud service providers and social media companies in 2022, particularly for large-scale, single-tenant facilities, as these firms race to build out metaverse and other digital communities,” said Pat Lynch, Executive Managing Director, Data Center Solutions, CBRE. “The continued adoption of autonomous vehicles, 5G infrastructure, and blockchain technology will also further fuel the data center real estate market in 2022 and beyond.”

Top U.S. Data Center Markets

Northern Virginia remained the most active data center market with net absorption of 303.3 MW in 2021 – more than four times that of Atlanta, the second-most-active market.

Top 10 Most Active Markets

Looking ahead, Northern Virginia has the largest under-construction pipeline, at 239 MW. Other markets with significant construction under way include Hillsboro, Oregon (234.8 MW); Atlanta (160.5 MW); Silicon Valley (94.6 MW); Phoenix (85.5 MW); and Dallas/Ft. Worth (75.8 MW).

To download the report, click here.

*The seven primary U.S. data center markets are Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta.