Houston stands to benefit from constraints dogging data center markets elsewhere in Texas, a new report indicates. This comes against the backdrop of Texas surpassing Virginia as the country’s top state for data centers — and amid deepening opposition to these facilities.
The report, published by commercial real estate services provider JLL, foresees Houston continuing to gain traction in data center development as occupants seek “scalable alternatives” to Texas markets experiencing supply-and-demand imbalances.
The Houston area currently hosts data centers with 287 megawatts of capacity, well below capacity levels in the Dallas-Fort Worth, Austin-San Antonio and West Texas markets.
However, the region is witnessing a spike in capacity, with 390 megawatts of capacity under construction, according to the report. Counting newly built data centers, Houston would be home to 677 megawatts of data center capacity, an 80 percent increase from the current inventory, the report says.
Developers target West Houston for large-scale data centers
Developers increasingly are evaluating West Houston and surrounding areas for large-scale campuses capable of supporting behind-the-meter power, according to the report. Data center development in the region is likely to remain concentrated in those areas, where power is readily accessible and flood risks are lower, the report adds.
The report notes that Houston is evolving from a traditionally enterprise-focused co-location market for data centers into a “credible large-scale growth market,” buoyed by rising interest in hyperscale facilities and increased development activity.
Corporate, energy and healthcare users are still active in Houston’s data center market, the report says, with cloud computing and technology tenants making inroads. The Houston market absorbed 25 megawatts of data center capacity in the first half of this year.
Texas crowned No. 1 state market for data center capacity
The growth of Houston’s data center sector is occurring in tandem with Texas’ ascent as a data center market. The report shows Texas now boasts 26 gigawatts of existing and under-construction capacity, followed by Virginia at 13 gigawatts.
JLL declares that “Texas has cemented its position as the state for data centers.”
The “frontier” markets of West Texas, the Carolinas, Louisiana, and Ohio account for 77 percent of all capacity being developed nationwide, according to the report.
As evidence of Texas’ heightened stature in the data center sector, commercial real estate services provider Cushman & Wakefield recently ranked Dallas as the world’s No. 1 primary data center market, while Austin-San Antonio led the list of second-tier markets and West Texas topped the third-tier ranking.
These rankings underscore “Texas’ growing importance as a large-scale AI infrastructure hub,” Cushman & Wakefield says.
Opposition to new data centers in Texas grows
While businesses see the value of adding data centers in Texas, the state’s data center boom is rattling residents and politicians alike.
A recent University of Houston survey finds that although 85 percent of Houston-area residents use AI—a key driver of data center growth—nearly 63 percent oppose construction of a data center within a mile of their home. Experts estimate 6.5 gigawatts of capacity, or roughly one-fifth of the total U.S. pipeline, will join the Texas power grid by 2030, with Houston serving as a main hub.
A poll taken recently by the University of Texas/Texas Politics Project yielded similar results: 56 percent of Texans oppose development of data centers in their community.
“Texas’ grid is already facing pressure from population growth, extreme weather and rising industrial demand,” UH researcher Soran Mohtadi says. “When residents say they are concerned about data centers, they’re mostly referring to grid reliability and affordability.”
Data center backlash prompts action by politicians
Responding to Texans’ concerns over power and water consumption, Gov. Greg Abbott recently imposed a moratorium on new data centers in the state to allow time for regulatory agencies to assess the projects’ impact. Meanwhile, some state lawmakers are calling for a crackdown on data center development.
Last month, a state legislative committee chaired by Sen. Joan Huffman, a Houston Republican, held a hearing on the effects of state sales tax exemptions given to data centers. The cost of these exemptions has climbed from an estimated $14.6 million in 2014-15 to a projected $3.3 billion in 2028-29, according to law firm Holland & Knight.
Two backers of massive data centers in Texas, social media giant Meta Platforms and AI powerhouse OpenAI, agreed this week to comply with Abbott’s recently issued standards regarding data center projects—and more have followed suit.
Dan Diorio, executive vice president of state policy and government affairs for the industry-backed Data Center Coalition, fears backlash against data centers may curb economic growth in Texas.
“I worry that communities that put moratoriums ultimately create too much uncertainty and unpredictability, and what that ultimately means is that those communities may shut themselves off to data center development but also may shut themselves off to broader economic development,” Diorio told Fox 7 News in Austin.