Phoenix Ranks No. 5 Nationally for Data Center Leasing Activity

Article originally posted on AZ Big Media on March 7, 2023

Activity from out-of-state technology companies drove unprecedented data center leasing activity in Phoenix during 2022, according to a new report from CBRE. The market’s absorption – a measure of net leasing activity – had 44.3 megawatts (MW) of net absorption in 2022, an increase of 48.7% from 2021.

“Phoenix continues to be a destination for many firms when selecting a site for their data center inventory,” said CBRE’s Executive Vice President Mark Krison. “This is evident by STACK Data Center’s recent purchase of 80 acres in central Phoenix for their multi-building campus with over 200 MW to be provided.”

Supply continued to be an inhibitor for growth in the Phoenix data center market with vacancy decreasing from 11.9% to 8.5% year-over-year. Over 77% of the 85.5 MW currently under construction has been preleased, putting additional pressure on developers to bring new data center space to the market.

Phoenix joins other top locations with power delays or constraints. Both APS and SPR report longer delays for quality redundant power delivery.  Similarly, environmental concerns will play a role in data center activity in 2023 throughout the Southwest. Water use and availability in the region are important considerations in site selection.

National Trends

CBRE’s latest North American Data Center Trends Report found that tight market conditions and escalating energy and construction costs caused primary-market average asking rents to increase 14.5% year-over-year to $137.90 per kW, the first year-over-year increase in pricing since 2017.

The seven primary U.S. data center markets* logged 686.9 megawatts (MW) of net absorption, up nearly 40% year-over-year. Despite a 17% increase in supply, vacancy fell to a record-low 3.2%. Two-thirds of the net absorption occurred in the first half of the year, as power and land constraints in certain markets, as well as construction delays, weighed on activity in H2 2022.

“Data center leasing slowed in the second half of 2022, but this was driven purely by a lack of available space and power constraints,” said Pat Lynch, Executive Managing Director, Global Head of Advisory & Transaction Services, Data Center Solutions, CBRE. “Demand from enterprise users and cloud service providers remains very strong, particularly as companies continue to adopt hybrid work strategies and prioritize private cloud networks.”

Top Data Center Markets

Northern Virginia remained the most active data center market with net absorption of 436.9 MW, with the market’s vacancy rate falling to under 1%, despite significant power constraints.

Top 10 Most Active Markets

Northern Virginia (371.5 MW) accounted for 65% of new primary-market supply delivered in 2022. Other markets with notable supply growth included Silicon Valley (66.0 MW), Hillsboro, Ore. (59.0 MW), Toronto (44.0 MW) and Phoenix (37.5 MW).