The data center industry is experiencing unprecedented growth, with Texas emerging as a prime location for new developments. This surge can be attributed to a combination of factors, including the state's robust infrastructure, competitive energy costs, and business-friendly regulatory environment. As organizations increasingly seek to expand their digital operations, the demand for leasing or selling land for data centers is on the rise. In this guide, we will explore the benefits of investing in property for data center development in Texas and provide a comprehensive overview of the leasing process, ensuring that prospective landlords and sellers are well-prepared to navigate this booming market.
What Should Landowners Know About Data Center Development in Texas?
Over the last decade, the data center market has been growing rapidly, undergoing a remarkable transformation. Data centers serve to be an essential part in maintaining internet growth and online service demand. They serve as specialized locations of vast computer networks and storage systems that work around the clock to process, store, and manage data.
Texas is the second largest data center market in the United States and plays a major role in contributing to the overall growth of the state’s economy. The state has over 200 data centers and stores over 150 GW of power across wind, solar, battery, and other renewable energy sources. With these rising numbers, landowners in Texas have experienced an increase in demand for their land to be used for data centers. Many developers are looking for land to expand existing sites and build new projects across the state, contributing to the large market for data centers within Texas. These opportunities provide benefits not only for the general economy and the job market, but also for landowners across the state.
LandGate provides a free marketplace that connects property owners of all types who want to sell or lease their land directly to developers seeking land for the development of data centers, while also providing useful property data to owners to help them make informed decisions through this process. Equipped with information about the value of their land, capitalization rates, and much more, LandGate provides landowners in Texas with extensive property data at no cost to help navigate the process of leasing or selling their land for a data center. To learn more about your property's potential suitability for a Data center, get a free Property Report by with LandGate's map and check out the Data Center value index score:
Why is it Attractive to Lease or Sell your Land for Data Centers in Texas?
Texas is an ideal spot to sell or lease your land for data centers given its favorable business environment, reliable energy resources, and large scale of return. With the development of colocation, hyperscale, and enterprise data centers, large players such as Amazon Web Services, Google, and Microsoft are large investors in the state and have been quick to integrate artificial intelligence and environmental sustainability measures into their projects.
While the buildable acreage for data centers in Texas can vary according to project specifications, the typical size range for small facilities can start off with just a few acres while large-scale projects cover an average of 100-150 acres. Larger data centers in Texas can exceed 200 to 300 acres. A medium-sized data center will typically range between 50-90 acres of land, and is the most popular size of property that developers demand in Texas.
Along with the financial gain from either leasing or selling property for data centers, landowners in Texas should be aware of the benefits that developing a data center has on the regional and state economy. The data center market within Texas has shown a 173.1% increase in growth over the last year, and has created thousands of jobs across the construction and IT industries. For example, Google’s $600 million data center in Midlothian created hundreds of jobs for local contractors, suppliers, and on-site workers.
Similarly, Meta’s $1 billion facility in Fort Worth created over 1,250 jobs, including construction opportunities and full-time placements.With each data center creating hundreds of jobs for local contractors, suppliers, on-site and maintenance workers, they also generate opportunities for full-time job opportunities across colocation facilities and hyperscale projects.
Additionally, Texas is moving towards advanced technological methodologies and is far ahead of other data center markets in incorporating artificial intelligence, machine learning, and edge computing methods within their work spaces to improve overall efficiency and performance. Latency reduction efforts, like reducing data file size for smoother data transmission, have increased with the advancement of technology within data centers, allowing Texas to remain at the forefront of technological innovation.
Moreover, data center projects in Texas are incorporating environmental sustainability methods to increase energy and productive efficiency, making them low-traffic sites with reduced infrastructural strain, which preserves the nature of rural land. Many companies have included initiatives such as advanced cooling techniques such as liquid cooling of HVAC. Some data center companies have gone as far as to reduce 40% of energy consumption in peak hot Texas climate. Additionally, some companies, such as Google, had adopted 100% renewable energy as their main energy sources within data centers.
Overall, while land in Texas is traditionally used for agricultural purposes, data center projects will not have the added risk of being climate-dependent. Texas experiences an extreme weather profile with its hot climate,and in recent years, flooding. Many data centers have taken on natural disaster and risk mitigation, creating location facilities that are built to withstand damage and have energy efficient ventilation systems, creating a reliable stream of income for landowners that lease their land for data centers regardless of the risk of natural disasters.
Considerations for Property Owners
By leasing or selling property in Texas for the development of data centers, landowners are able to contribute to the infrastructure that keeps the digital world and the economy running smoothly.
Property owners of all types, ranging from individuals to corporations and governments, are not only a critical component in the digital network that supports the technology provided by data centers we need to operate every day, but also a key component to regional and state economic development.
When selling or leasing land in Texas for data centers, landowners should keep the typical size requirements in mind along with several other important considerations. Zoning and regulatory laws will impact the amount of land eligible for development. The property’s proximity to power and fiber optic sources will also affect a property’s suitability for data center development. Learn more about if your property could qualify for data center development here.
The Texas Tax Code’s Chapter 313, also known as the Texas Economic Development Act, provides property tax benefits for capital-intensive projects, including data centers given that the project creates significant capital investment. The potential tax savings under Chapter 313 can make land more valuable for potential buyers, allowing a fair leverage of the price of land available for sale or lease. Additionally, long-term tax benefits also allow data center investors to enter into long-term lease agreements with landowners to construct data centers on their property, which provides a secure and consistent source of income for landowners.
What is the Process of Leasing Property for Data Centers in Texas?
There are eight steps involved in leasing land for data centers in Texas:
1. Land Qualification
The first step for landowners in Texas curious about leasing or selling their land for data center development is to understand if their land is suitable for a data center. Factors such as location, buildable acreage, zoning, topography, proximity to energy and utilities, and environmental considerations like flood zones and wetlands all impact a property’s viability for a data center.
Curious if your land in Texas could qualify for a data center lease? LandGate provides data center value index scores for every property in the U.S. within our free property reports. On a scale of 0-100, the data center value index score will let you know how suitable your property could be for data center development. Get a free property report by finding your parcel on LandGate’s map today!
Institutional and government property owners in Texas have the opportunity to lease their properties for data center development to generate revenue and contribute to economic growth. To learn which of your agency’s specific sites are most suitable for data center development, book a free consultation call with the government & corporate team at LandGate below:
2. Market Your Property for Lease or for Sale for a Data Center
Listing your property in Texas for lease or for sale for the construction of a data center on LandGate’s marketplace is the best way to market and get the most value from your property. By listing on LandGate’s marketplace, you are presenting your property to various competitive companies actively searching for properties in Texas to lease or buy for data center development.
If you’re unsure if your property could be suitable for a data center, our team recommends creating a listing anyway- listing is completely free with no obligations to accept any offers, so you never know what kind of offers you may receive.
3. Receive Lease Offers
Once your listing is live on LandGate’s marketplace, any interested developers will reach out to you directly with offers using the contact information provided when you registered for your LandGate account.
4. Lease Negotiation
Negotiating the ground lease offer is the first step you will take after receiving an offer. LandGate is unable to provide legal advice or assist with conducting due diligence on any offers that you receive, but we can refer you to a licensed expert that can help. These professionals, such as commercial real estate brokers, attorneys, and engineers, can assist you in ensuring that you are securing a good deal.
Always remember that lease agreements are completely negotiable. You can negotiate things like the value of the lease payments, the length of the lease, and the percentage of the escalator. Typically, ground leases for data centers range from 75-99 years, and generally provide escalating base rents, percentage rent arrangements, and outline responsibilities for maintenance and utilities.
5. Lease Option Agreement
After negotiations, developers need to retrieve data center option agreements. Typically, this follows a check by the developer, ensuring that the land meets their needs and in the case of tax exemptions of subsidiaries, meets all necessary government requirements. It is essential for both parties involved in the agreement to assess possible engineering and land factors, to ensure the feasibility of the project and ensure that it receives all necessary approvals to begin. Oftentimes, data center proposals will be pitched to the county or state government.
Why can't I get a lease agreement directly?
The process of developing any large data center begins with the developer optioning the land, also known as ‘site control,’ typically through a Ground Lease. Once thorough land evaluation has taken place, utility application is necessary. This means that the data center project will need further due diligence to ensure that sites have required proximity to a power source (renewable or a power substation), access to fiber optic cables, and that necessary easements are in place.
Where can a landowner get more information about the lease?
You can find out if your property could be suitable for a data center by getting a free property report from LandGate. LandGate provides data center value index scores for every property in the U.S., which will evaluate your property on a scale of 0-100, letting you know how suitable your property could be for a data center. Get a free property report by finding your parcel on LandGate’s map:
6. Lease Agreement
Once site control is confirmed, the project is then moved to a ‘planned’ phase. The option agreement now becomes an official lease agreement, and the landowner begins to receive lease payments from the data center developer. The specific amount of these lease payments depends on what is negotiated in the lease.
7. Data Center Construction
Lease payments for data centers are phased as projects progress. Typically, the lease payments start as a small amount during the option period and increase during the construction phase of the data center, with payments reaching their peak upon completion of the data center.
Depending on the size of the project, constructing a data center can take anywhere from 18 to 40 months before the data center reaches full operation. Smaller projects will take a substantially less amount of time to complete.
8. Active Data Center
After construction is completed and the data center is fully operational, the lease enters the ‘production’ phase, which indicates that the land is now responsible for data storage and transmission through the data center. This period will last throughout the remainder of the lease.
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