August Raub Report: AI Needs New Data Centers

In the June and July Reports, I tried to address Artificial Intelligence and the impact it may have on Commercial Real Estate as a whole. This month I would like to look at AI’s impact on a very specific class of commercial real estate in San Antonio, and that is Data Centers (DC). These are the extremely complex facilities, absorbing enormous amounts of electricity from our CPS in order to provide warehouse space for gazillions of 1’s and 0’s, who need a very steady supply of energy, uninterrupted by tornados, hurricanes, earthquakes, floods, fires, etc. And they need to be kept fairly cool, despite the triple digit Texas heat. Fragile lil’ darlin’s. Bless their hearts.

San Antonio Data Centers

San Antonio currently has 23 data center facilities operating with an additional 5 under construction, according to SA Report. We have good geography, since we lack most of the negatives mentioned in the paragraph above. (Thank God). We are the 27^th city in data center operations in the USA. We have 1.8-million square feet of DC space and just over 5,000 employees. DCs do not take a lot of maintenance since the 1’s and 0’s play well with each other, generally. But DC daycare workers do earn close to $100,000 a year.

#1 Data Center Operator in San Antonio

Microsoft is the largest operator with 9 facilities and more under construction, in 2018 they bought about 150 acres from Texas Research and Technology Foundation (TRTF) for a hyperscale campus, located on the Bexar Medina County line, off of Potranco Road. By the way, TRTF then used this money to purchase their redevelopment site on East Commerce, transforming it into a magnificent biotechnology research and incubator center. Microsoft has invested over $1.2-billion in our fair city with considerably more pending, including their former Texas Research Park campus and four more in Westover Hills.

#2 Data Center Operator in San Antonio

Number two DC operator in San Antonio is Cyrus One with four facilities in Westover Hills, one in TRTF and at least one more planned there. And then, Amazon is developing three centers, Lumen two and others include Stream, H5’s downtown 100 Taylor and Frost Bank in Westover Hills.

#3 Data Center Operator in San Antonio

Then, in May, CloudHQ, purchased a 123-acre site at the Texas Research Park for up to five new data centers; adding on to their current inventory of over 30-million square feet in 12 campuses in Chicago and northern Virgina.

Data Center Market & Utilization

Already, the Austin/San Antonio market is the second tightest for utilization in the U.S., with only 1.3% available. The Northern Virginia/Washington D.C. market is both the largest and most highly utilized market in the country. This is a category of CRE that is extremely expensive to build, maybe $1,000 to $2,000 per square foot, and takes a long time so bringing new capacity on-line will not happen quickly. The type of construction matters considerably, too, as the requirements to support AI are considerably higher than can be accommodated in the “traditional” data center.

For comparison’s sake, a traditional DC has a capacity of about 6kw per rack, while the extreme density AI workloads can run from 40kw to 60kw per rack, essentially 10X the traditional size. This will lead to a prospective building boom in DCs in future years. Now, the buildings are supposed to last 10 to 15 years, but the equipment has a life expectancy of 3 to 5 years, so it is critical for developers to design and construct buildings that can be expanded and upgraded as easily as possible.

Data Center Planning, CPS

CPS is the nexus of enquiries for possible new data center development and they report they are being inundated from all over the U.S. However, there is a significant amount of planning and engineering needed before a project can begin to move forward. They only approve new facilities as they have the energy capacity to supply them, so CPS will be building more facilities to meet our residential needs as well as those of various industrial operators.

Becoming Carbon Neutral

These factories generate a great deal of heat. Just think about how hot your personal computer gets and multiply that by a million. Excessive heat degrades the efficiency of the operations and so designers have even developed liquid cooling and immersion cooling. This essentially puts the computer into a very special liquid bath to dissipate the heat. Think about getting over-heated mowing your yard, and then taking a dip in your swimming pool. Liquid dissipates heat better than air. There are also designs in the works to capture the heat and recycle it into renewable electricity. Microsoft’s goal is to become carbon neutral in the next 10 years.

Commercial Real Estate and AI

So new data center construction will certainly be in our future as we are already a very major player in this segment of commercial real estate and Generative AI is driving the huge demand for additional facilities. San Antonio will see our fair share.