Phoenix Lands on List of Top 10 Data Center Markets

Article originally posted on Globe St. on March 29, 2021

Phoenix is the sixth-ranked data center market in the country, based on the impressive leasing activity in the Southwest city last year. Research from CBRE, which ranked the top data centers in the nation, found that Phoenix absorption increased 38% last year while the vacancy rate fell to 6.7%, the lowest level since 2016.

“Leasing demand has increased for a combination of reasons that have created a bit of a perfect storm. The expansion of 5G but also the broad work-from-home experience contributed to an increase in data center demand. Between the public cloud and private cloud with enterprise companies trying to expand space and power to accommodate internal demand, data centers have been in high demand,” Mark Krison, SVP at CBRE, tells GlobeSt.com. “We had expected robust demand from enterprise companies, but COVID and its effects increased it exponentially.”

The activity is particularly impressive considering that 9 MW of new supply delivered in the market last year. The supply, however, stabilized pricing, which remained at $115 per MW. This will likely drive continued activity in 2021. “Activity has been good for pricing from the end user and tenant perspective. Owners are very aggressive now and rents have stabilized. So going forward, tenants will see good lease opportunities,” says Krison.

The activity has also driven increased investment and development in the market. Generally, these development deals a build-to-suit opportunities. “We have developers who build new data centers for third party leasing and those that purchase leased data centers much like an office building. But there are very few data centers that are for sale as leased properties,” says Krison. “What we have seen here in our region over the past 24 months is demand from new developers buying land and building data centers.”

Data center growth during the pandemic was merely an acceleration of existing trends, and Krison expects the momentum to continue through 2021. “The outlook is positive, both on the national and regional level. The industry has seen double-digit growth over the last 10 years,” he says. “This is likely to continue. Phoenix in particular is popular due to a lack of quality data center space on the West Coast, and the sales tax reduction here for companies spending over $25 million has had a favorable impact on new incoming business to the state.”

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