Major Data Center To Rise in Central Texas Region With Tight Supply

Switch To Build 1.5 Million-Square-Foot Data Center North of Austin Near Dell’s Campus

A new data center planned near Dell Technologies’ headquarters could dramatically expand the data center industry in the Central Texas region, offering another boost to the area’s already growing high-tech industrial sector.

Switch, a Las Vegas-based data center and technology company, announced this week it is planning a 1.5 million-square-foot data center in Round Rock, Texas, a suburb 19 miles north of downtown Austin. Switch specializes in supercomputing centers housing exascale computers, which can perform a quintillion calculations per second, enabling faster and more complex processing.

The new project comes as tech giants and cloud service providers respond to growing consumer and corporate demand for data storage to support increased remote working and cloud-based operations, according to a report from CBRE. While the beginning of the pandemic last year made many companies hit pause on spending for their IT departments, demand started to pick up in the second half of 2020. Nationally, the growth in cloud storage is expected to support robust demand for data center space in many cities this year.

In a project called “The Rock,” Switch expects to begin site preparation and permitting this summer on land it has agreed to buy from Dell Technologies for an undisclosed price. It was not immediately clear how many acres were involved in the transaction, the address of the property, or if it will be a multitenant or single-tenant data center. Switch did not immediately respond to inquiries from CoStar News. The data center is expected to be built near the intersection of Mays Street and One Dell Way, adjacent to Dell Technologies’ Round Rock headquarters.

The new Round Rock facility adds to Switch’s growing footprint in Texas after announcing last month it is buying Texas-based data center provider Data Foundry for $420 million in an all-cash deal expected to close this year. Through the acquisition, Switch will inherit Data Foundry’s 500,000 square feet of data center space in Austin and Houston.

Once The Rock campus is constructed, Switch’s Texas portfolio is expected to encompass 2 million square feet of space using 185 megawatts of power. The company said its data centers rely on 100% renewable energy.

“This is another transformative milestone in the growth of our company to further expand our geographic diversity to the central region” of the United States, Switch founder and CEO Rob Roy said in a statement.

Switch, Dell Technologies and FedEx previously announced that the companies are working together to develop new technologies to improve the performance and processing speed of cloud computing applications.

“To be strategically located alongside the Dell Technologies global headquarters is an opportunity to continue broadening our offerings of the world’s most advanced data center infrastructure to current and future Switch clients,” Roy added.

The joint initiative is expected to bring multicloud resources and exascale computer power closer to where customers run their businesses, according to an earlier announcement from Switch. Taking this approach allows organizations to make faster decisions using artificial intelligence, machine learning and 5G internet.

The new Round Rock facility next to Dell Technologies’ digs is expected to further deepen Switch’s relationship with the technology giant that ranked No. 28 on this year’s Fortune 500 list of the largest publicly traded U.S. companies based on revenue. Dell Technologies reported $94.2 billion in revenue in 2020, up 2.2% from 2019, according to Fortune.

“Since Dell was founded in 1984, we’ve seen Central Texas grow into a technology and innovation hub to the benefit of the entire community,” said Michael Dell, chairman and CEO of Dell Technologies, in a statement. “With this agreement, we welcome Switch to a wonderful neighborhood and at the same time continue to expand our relationships with leading data center service providers.”

Switch did not receive local economic incentives to build the facility in Round Rock, according to a spokeswoman for the Round Rock Chamber of Commerce. However, Texas offers a sales tax exemption on equipment and electricity for data centers that are at least 100,000 square feet with an investment of at least $200 million and that employ at least 20 workers at above-average wages, according to Gov. Greg Abbott’s office.

Switch’s 1.5 million-square-foot data center is expected to supersize Austin’s data center inventory, pulling the scale of the market ahead of some other major cities. The Austin-San Antonio region had an estimated 759,950 square feet of multitenant data center space using about 144.8 megawatts worth of power as of the end of last year, according to JLL’s year-end 2020 data center outlook report. However, when including multitenant, single-tenant, and owner-occupied data center space across flex, office and industrial building types, Austin has 1.4 million square feet of data center space, according to Sam Tenenbaum, CoStar’s director of analytics for Central Texas.

Last year, the Austin-San Antonio data center market’s vacancy rate fell to 2.8%, an all-time low for the region, according to CBRE’s North American data center report for the second half of 2020. Even though the total inventory of data center space in Central Texas grew last year, the region had the second-tightest supply in North America, behind only Silicon Valley, according to CBRE’s report.

“The lack of competitive supply across Austin and San Antonio has created significant opportunities for data center operators to expand in or enter the market,” said Brant Bernet, senior vice president of Dallas-based CBRE’s data center team in Texas, in a statement. “This expansion is important, as the continued growth of Austin’s tech sector, including relocations of businesses from other parts of the country, should increase data center demand.”