Texas colocation providers are enjoying a booming market, with some areas where there is enough computer room floor space to satisfy only half of the demand. Just this week, two colocation companies announced the launch of new facilities in the state: a 20,000-square foot CoreXchange facility in Dallas and a 94,000-square foot CyrusOne facility in Houston.

Demand for colocation space in the state is driven partly by companies’ desire to save money by outsourcing rather than building new data centers. William Charnock, VP of technology with The Planet – one of the largest colo providers in the state – attributes about 20-40 percent of growth to first-time outsourcers.

“What you’re also seeing is a wave of companies that have been in data center facilities that may be 10 or 15 years old,” Charnock added. With new technologies requiring higher power densities, companies are turning to colocation providers rather than spending money on building out new data centers.

LEASES ARE BIGGER AND LONGER THAN FIVE YEARS AGO
Charnock has observed a number of changes in the nature of the demand for colo space in Texas during the past five years. Deal sizes have increased and so did lease durations.

“Five-six years ago, the types of deals that you saw tended to be a cabinet, maybe a couple cabinets, a cage every once in a while,” he recalled. “What we’re seeing now is much larger outsourcing RFP’s that are coming our way for spaces that are 5,000-20,000 square feet.

While traditional one- or two-year colo deals still take place, the Planet has recently been seeing demand for leases that last for up to 10 years, with five-year extension options.

“These particular companies are here to stay. They are outsourcing a big chunk of what they may have run in-house or they’re moving to a new facility and they want to migrate it and not think about it for the next 12-13 years before they have to do it again.”

Conditions in Texas are very favorable for data centers. Taxes are low; power is relatively cheap; network infrastructure is rich and regulations are loose. Also low are real estate costs and the cost of living. The latter factor, in combination with the University of Texas system, is responsible for creating a rich technical talent pool.

There are four major industry hubs in the state: Dallas-Fort Worth, Austin, Houston and San Antonio. The DFW area is by far the largest colocation data center market in Texas, with 33 facilities offering colocation services.

DALLAS-FORT WORTH – THE BIGGEST COLOCATION MARKET IN TEXAS
Still, “the supply of data centers in the Dallas-Fort Worth area is at a minimum right now,” said Sheila Bellinger, the Southwestern director and VP of the National Data Center Group at Grubb & Ellis – a large US commercial real estate advisory firm. “It seems that people are waiting for tenants before they spend the money to build out the raised floor.”

Because of scarcity of space, colocation prices in the DFW market are up. Companies that have recently either entered the market or expanded their presence there include The Planet, Horizon, Colo4Dallas, CyrusOne, Telx and Savvis.

Some of the few facilities that have large chunks of space and power available for lease are two Digital Realty Trust properties in Richardson and Dallas, a Capstar facility in Mesquite, Databank in Dallas, as well as CyrusOne and The Planet data centers, Bellinger said.

“They all have Tier II or Tier III wholesale options, with approximately 2 MW of power available for occupancy in 2010,” she added.

NO SHORGATE OF CLIENTS IN AUSTIN
The Austin area has seen a lot of growth in the last 18 months. Shifting away from a tradition of using out-of-state data center providers, Austin technology companies now tend to be using Texas colos much more.

There are nine colocation providers in the market, including CyrusOne that recently opened a 50,000-square-foot data center there with power capacity of 8 MW.

Not only companies of CyrusOne’s or The Planet’s caliber get to play, however. Data center company sizes vary greatly.

An example of a successful smaller player is CoreNAP, whose one 15,000-square-foot facility is 75-80 percent full, according to the company’s Director of Data Center Operations Brian Achten. The provider goes after small and mid-size companies and its roughly 300 current customers come from a wide variety of industries.

The company has plans to expand into a second facility and is currently at the stage of looking for an appropriate location. The new data center will be anywhere from 30,000 square feet to 60,000 square feet.

To compete with the big boys, CoreNAP puts a lot of emphasis on network connectivity services at its facility. “Because a lot of these IT groups are very focused on their servers, on their application, and the network play is not something that they’re very strong at,” Achten explained.

“We handle a lot of these more complicated customers that need special BGP set-ups, or need to aggregate tons of VPN connections around Texas, or have a lot of long-line, leased-line requirements. They could easily go to a larger provider like an Equinix, or something like that, but they’re going to see thousands and thousands of dollars chewed up in their cross-connect charges, whereas we’re not trying to nickel and dime them there.”

CoreNAP tries to handle most of its clients’ network problems so they can focus on their core competencies.

HOUSTON AND SAN ANTONIO COLOS NOT COMPLAINING
Both Houston and San Antonio have strong colocation markets as well. Both are good markets for attracting energy companies.

“Despite weather concerns, a lot of energy companies have their data centers in Houston but they all put back-up in Dallas area,” Bellinger said.

A large colocation and managed services provider Rackspace is headquartered in San Antonio. “They got significant economic incentives to stay there. They plan to invest $100 million in their new San Antonio headquarters, including 4,000 new employees over next five years.”

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