Dallas at a crossroads on data center policy amid regional boom

Dallas zoning regulations for data centers lack rules tailored to their growing demand for power and infrastructure. That could soon change, as the city is in the midst of a zoning reform project. 

As demand for data centers and supporting infrastructure surges in Dallas-Fort Worth, the absence of a coordinated approach raises questions about who bears the cost of this growth. And whether Dallas is prepared for the next wave of expansion, said Ian Seamans, a City Hall advocate with the nonprofit Environment Texas. 

In Dallas, there are a few dozen operating data centers, most embedded in downtown buildings, telecom hubs and office corridors. The majority are classified as carrier hotels — buildings that house networks and cloud services in dense urban areas. 

These facilities tend to be smaller than the massive wholesale and hyperscale campuses emerging in northern suburbs like Plano, Richardson and Frisco, and in areas south of Dallas like Red Oak, where land is more available. 

As Dallas works to update its zoning code, data centers have become a focal point. 

Environmental advocates see an opportunity to strengthen rules addressing the heavy demands these facilities place on water, power and land. Commercial real estate experts caution against overregulation, arguing the city can balance resource protection with continued investment in a fast-growing industry. 

“Local jurisdictions can create policies that will help to develop real assessment of how much burden will go to our water and electricity system,” said Seamans. “And to know the amount of jobs that a development of this type will bring to see if the trade-off is worth it.”  

Dallas-Fort Worth was named the No. 1 primary data center market in the world, according to a new report released this month by real estate firm Cushman & Wakefield.

Much of the region’s early growth began in downtown Dallas, where existing telecommunications infrastructure made it easier to retrofit office buildings for data center use. 

Raul Saavedra, head of data center advisory for the Americas at Colliers, said even as growth shifts to the suburbs, Dallas remains critical. 

Related: Dallas ranks No. 1 primary data center market globally, surpassing Atlanta, Virginia

Latency-sensitive workloads — such as financial services, content delivery and artificial intelligence — require proximity to dense fiber networks built over decades in downtown Dallas. The city also has the highest concentration of users who rely on that connectivity. 

“Dallas is where low-cost scale meets real network relevance, and very few U.S. markets offer both,” Saavedra said. 

Lower business costs, relatively low electricity prices and tax exemptions for qualifying data centers are also fueling growth in the region, he said. 

The Dallas Development Code classifies data centers as communication exchange facilities, defined as centralized locations for equipment that stores and routes voice and data transmissions. 

These facilities are allowed by right — without a rezoning hearing — in most business, industrial and mixed-use areas. In commercial retail districts, they are only permitted in buildings that are 50,000 square feet or smaller. They are also allowed in certain nonresidential planned developments. 

Projects that require rezoning to accommodate a different type of use must be approved by the City Plan Commission. These types of rezoning can include general zoning changes, planned developments or specific use permits. These cases require notification to nearby property owners within 200-500 feet, depending on the proposal. 

When a land use is permitted by right, there is no requirement for public notification — a gap that new policy could address, said Kathryn Guerra, chair of the Dallas Environmental Commission and director of Public Citizen’s Texas Commission on Environmental Quality watchdog campaign. 

The Dallas Environmental Commission voted in February to develop policy recommendations for the City Council. In the coming months, members will hear from experts on water, energy, air quality and community impacts. 

Related: Dallas releases first extreme heat intervention guidebook ahead of another brutal summer

“We want to be really proactive in our approach, instead of being reactive,” said Guerra. “We are seeing communities that wake up one morning and the land next to them has been graded and there’s really not a lot that can be done to stop it at that point.”  

The city reviews only the portion of a project’s electrical system located on private property. 

Beyond that, utilities such as Oncor determine whether the grid can handle demand and what upgrades are needed, according to the Dallas Planning and Development Department. 

In an email, the department said the city does not apply a specific power-demand threshold that triggers additional review. All projects must meet the same codes and standards. 

Seamans said stronger policies could help protect residents and the energy demand.  

“We need policies at the local and state level that require renewable energy,” he said. “That would help prevent additional air pollution, limit water use and reduce the risk of energy shortages.” 

Water use is another concern for environmental advocates. 

The Texas Water Development Board recently estimated that preventing a statewide water crisis over the next half-century could cost $174 billion. Cities like Corpus Christi have already begun restricting water use amid shortages. 

In Dallas, data centers are treated like other large businesses. Water use is metered and billed monthly, with no special limits or regulations. 

Related: Corpus Christi will likely face emergency water restrictions this fall, staff warns

The Dallas Water Utilities Department said via email it is studying how data centers use water and reviewing best practices nationwide, while coordinating with regional partners to plan for future demand. 

Because projects are evaluated individually, the city does not assess the cumulative impact of multiple data centers in the same area. 

Community advocates also point to air pollution concerns. The Sunrise Movement in Dallas is campaigning to halt new data centers in the region, citing the diesel generators used for backup power. 

Lizeth Mendoza, a co-coordinator with the group, said those generators can produce harmful pollutants that increase health risks for nearby communities. 

The American Lung Association recently ranked Dallas-Fort Worth among the most ozone-polluted metro regions in the country. 

Advocates warn that without cumulative impact analysis, continued growth could disproportionately affect vulnerable communities. 

“Even if a data center is built in Tarrant County, we share an airshed and watershed,” Guerra said. “The environmental impact is felt across the whole North Texas region.” 

The Dallas Planning and Development Department said data center regulations will be considered as part of the broader zoning reform effort. 

The city launched the process in 2024 and it is now in its third phase, with an initial draft code expected by July. Adoption is projected between 2027 and 2028. 

As the city gathers public input, advocates are urging residents to weigh in. 

Environmental and industry leaders agree the city has an opportunity to establish a clear framework that protects resources while supporting economic growth. 

Saavedra said that includes creating a predictable approval process and identifying areas best suited for future data center development. 

“The goal is to filter speculation out of the pipeline while keeping serious, well-capitalized projects moving,” he said.