The data center market in Austin and San Antonio is experiencing record growth and demand

The first half of 2024 saw a notable increase in data center development across the United States, with Austin and San Antonio experiencing explosive growth.

A new CBRE report considers Austin and San Antonio as secondary data center markets, with their combined construction activity quadrupling year over year to 463.5 MW.

Hyperscalers and AI providers remain the key growth drivers in the data center market, with developers increasingly focusing on Austin’s suburbs due to land availability. This trend has led to a significant increase in construction activity in the greater Austin area, with capacity increasing from 88 MW in the second half of 2023 to 463.5 MW in the first half of 2024.

Growth is occurring primarily in the north and south of the Austin metropolitan area as developers seek to capitalize on the region’s strategic location and favorable business environment.

The CBRE report highlights the unprecedented growth, declining vacancy rates and evolving market dynamics shaping the industry.

As the data center market continues to grow at an unprecedented pace, challenges around power availability and infrastructure lead times are critical factors to consider. However, with no signs of slowing demand, the industry is poised for further growth, fueled by ongoing digital transformation and increasing use of cloud and AI technologies.

Supply explosion and record low vacancy rates

Supply in primary markets, including major data center hubs such as Northern Virginia, Dallas and Chicago, increased by 10%, or 515 megawatts (MW), in the first half of 2024, a year-over-year increase of 24%, or 1,100.5 MW. Despite this increase in supply, demand was so robust that the overall vacancy rate in primary markets fell to a record low of 2.8%, down from 3.3% a year ago. Similarly, the vacancy rate in secondary markets fell from 12.7% to 9.7% over the same period.

This increase in vacancy rates reflects intense competition for data center space as companies, particularly in cloud and AI, continue to expand their digital infrastructure to meet growing demand.

Construction activity reaches record highs

The report also notes that construction activity in major markets increased by an astonishing 69% year-on-year, reaching a record 3,871.8 MW. However, the rapid pace of construction has come with challenges, primarily due to a lack of available power and longer lead times for electrical infrastructure. These factors have delayed construction completion and caused a backlog in meeting growing demand.

Pre-letting dominates the market

Demand for new data center capacity remains robust, with nearly 80%, or 3,056.4 MW, of the 3,871.8 MW under construction in major markets already pre-committed. While cloud providers remain the dominant players in leasing available power capacity, artificial intelligence (AI) providers are also significantly driving demand, reflecting the wider adoption of AI technologies and the associated need for massive computing power.

Price trends and location selection

Despite the rapid increase in supply, prices in primary markets continue to rise, albeit at a slower pace than in previous years. The average monthly supply price for 250-500 kilowatt (kW) demand increased 7% to $174.06 per kW/month in the first half of 2024. This increase reflects the ongoing lack of available supply, particularly in markets where power availability remains the most important criterion in site selection.

Insights into the colocation market

The colocation segment of the market also saw significant activity, with the overall vacancy rate remaining at a record low of 1.8%. This low vacancy rate and the ongoing lack of supply have driven up prices. The capacity under construction in this segment is almost entirely pre-leased, underscoring the continued demand for flexible, scalable data center solutions.