One of the lasting effects of the pandemic has been the acceleration of technological adoption. What once was a benefit only available to a few positions, platforms such as Zoom and Teams have shown that online video conferencing can bridge the physical distance between colleagues to facilitate work from home arrangements anywhere in the world. The internet skeptics who still wanted to check their account balance at a bank branch or hadn’t indulged in the convenience of ordering packages from Amazon found themselves in a unique historical moment that required them to adopt new behaviors that may endure as habits.
To be sure, this trend of larger chunks of everyday life being mediated through a screen was in motion before the COVID-19 public health crisis, but the disruption it caused supercharged that trajectory.
A key piece of infrastructure that makes having anything from a trampoline to takeout delivered with a tap of a finger are data centers. These facilities enable much of modern life, from social media to hospital record-keeping.
“With every advance in technology, we become more dependent upon it and so does the economy,” says Steven Zylstra, CEO of the Arizona Technology Council. “Every time you send an email, you’re storing data somewhere, so that you can retrieve that email when you want to. The world is now reliant on not just the internet, but the infrastructure that supports the internet.”
Indeed, a recent CBRE survey found that “the strong appetite for data, fueled by continued growth in cloud computing and social media, and the emergence of new technologies such as 5G and autonomous vehicles, is driving increased investor interest in data centers.” The growth in data demand is but one reason that Greater Phoenix has seen an influx of data center development, with the same CBRE survey indicating that investors only put Silicon Valley and Northen Virginia ahead of Phoenix’s market.
Mark Bauer, managing director and co-leader of JLL’s Data Center Solutions group, says that absorption rates in 2021 nearly tripled from the year prior. “[Phoenix] had 51 megawatts of absorption back in 2020, and in 2021, we did 142 megawatts,” he says. “Many of our data center operators that had space no longer have any available. And it’s now a race to build the next phase of data centers.”
Getting new data centers off the ground is becoming increasingly difficult as the supply of available land in the region continues to dwindle.
“We’re tied to a lot of the industrial development happening,” Bauer explains. “Because of that, we are finding ourselves pushing the envelope in terms of our costs per square foot. It used to be that if you had an industrial piece of land and wanted the highest price, you’d go to a data center developer. Now we’re competing with other industrial developers for the ideal piece of land.”
Bauer notes that over the past three or so months, he’s seen prices double or even triple in certain areas of the city. “The larger, centrally located pieces are selling at a price we’ve never seen before in Phoenix, in the $30 to $40 per square foot range for industrial land. In East Mesa, Goodyear and Glendale, you could buy for $5 or $6 per square foot a year ago, and it’s now approaching $10. There’s a rush right now for good land sites for data center developers,” he says.
There are many factors that make Greater Phoenix an alluring place to develop data centers. The region’s stable power sources and low propensity for natural disasters translates into reliability for users. The stability and continuity of service is paramount for businesses where interruptions could mean millions of dollars lost or — depending on the operation — endangered lives.
For example, on Oct. 4, 2021, MarketWatch reports that a six-hour Facebook outage cost the company approximately $164,000 a minute for a total of $60 million. Shares fell 4.9% in response, representing $47.3 billion in lost market capitalization.
People like Zylstra have also worked to make Arizona a reliable and friendly business environment. He was involved with a data center advocacy group that successfully pushed for eliminating the sales tax data centers pay on servers.
“A data center is a server farm. It has hundreds if not thousands of them — and they’re pricey pieces of equipment,” Zylstra explains. “We have low property tax, low income tax, but fairly high sales tax here in Arizona. Ultimately, we were able to eliminate the sales tax on [servers]. There have been efforts to pass along that same benefit to the software that’s used in these data centers that haven’t been successful yet. But that doesn’t mean we’re giving up on it.”
Zylstra also points to 2011’s House Bill 2001, known as the Arizona Competitiveness Package, which made a series of legislative changes to make the Grand Canyon State more attractive, including decreasing the corporate income tax rate from 6.97% to 4.9%.
“We’re constantly trying to position Arizona to be one of the best states to locate any kind of technology company. Data centers are important because they bring big names to the Valley,” Zylstra says. “Apple brought a command center here, which is a pretty big deal. Microsoft has built three data centers in the West Valley. PayPal, American Express, AT&T — companies in the business of creating and storing data — have massive data centers here.
“Meta is now a member of the Technology Council, and they haven’t even finished a data center yet,” he continues. “We’ve been helping get Meta connected in the community to educational institutions and other folks that they need to know that are part of the ecosystem.”
On Aug. 12, 2021, Meta announced plans to invest $800 million in the company’s first data center in Arizona. The Mesa-based project is expected to support upwards of 100 operational roles and 1,500 construction jobs. In a press release on the matter, Rachel Peterson, vice president for data center strategy at Meta, says, “Mesa stood out as a great location for a number of reasons. It has great access to infrastructure, opportunities for renewable energy development, strong talent for both construction and operations, and great community partners.”
Sustainability is at the forefront of Meta’s 960,000-square-foot data center. According to the company, Meta plans to restore over 200 million gallons of water per year in the Colorado River and Salt River basins to replenish more water than the data center will consume. It also claims the Mesa facility will use at least 60% less water than the average data center.
Colette Moore, principal water planning analyst for the Salt River Project (SRP), explains that Meta’s data center will be receiving renewable water in the form of long-term storage credits from SRP’s joint venture with the Gila River Indian Community, Gila River Water Storage (GRWS).
“Through GRWS, we take [the Gila River Indian Community’s] Colorado River water that they don’t need for their reservation purposes in that year, and we store it underground, and that’s recognized as a long-term storage credit. It’s like putting a deposit in a bank,” she says. “For Meta, we actually had some credits already stored under the City of Mesa’s water service area that was ready and available for their use.”
Since the data center will purchase long-term storage credits from GRWS, it will not use any water rights from Mesa’s municipal supply for operations. The water represented by those credits is renewable since it originates from a renewable surface water supply — the Colorado River — despite it being stored and delivered through a groundwater well.
“Data centers are somewhat water intensive, but their technology is getting more and more efficient,” Moore says. “The water they do use is reused on site, and then is reused again by the water provider once it’s discharged to them. In Arizona, we are very good at using and reusing every drop we can, because we recognize it as a vital resource.”
Another avenue through which Meta will pursue sustainability is by committing to use 100% renewable energy for the Mesa facility, which will require 450 megawatts of electricity for operations. To put that in context, one megawatt meets the power needs of approximately 225 homes, meaning that Meta’s Mesa data center will require the same amount of energy as 101,250 residences.
As part of SRP’s goal to expand utility-scale solar resources to 2,025 megawatts by 2025, the utility announced the construction of three new solar energy plants in Pinal County on Aug. 12, 2021, that will produce a combined total of 500 megawatts of renewable energy. The Meta data center will be the largest taker, utilizing 90% of the power generated by the three solar plants.
Karla Moran, principal economic development analyst for SRP, explains that meeting the 450-megawatt load requirement through clean sources was a top priority for Meta.
“It was a deciding factor when [Meta] looked at sites and how accessible they could be to help accelerate bringing renewables onto the system,” she says. “That was upfront in the first part of our talks with them. And they’re not alone, most of the larger clients that have data centers are having similar conversations.”
Zylstra concurs, adding that Apple also insisted that its power came from clean sources and that other members of the Arizona Technology Council, such as PayPal and American Express, have similar goals for their existing data centers they intend on meeting by 2025 or sooner. Much of that pressure, he says, isn’t coming from regulatory bodies, but employees and investors — both of which have a say in what these companies do from a social standpoint.
“Despite the fact that the Arizona Corporation Commission wouldn’t set energy goals, all of the major energy providers — [Tuscon Electric Power], [Arizona Public Service] and SRP — have set goals that are synergistic with the international push to be clean by 2050,” Zylstra concludes. “Increasingly, companies are going to require that their power comes from clean sources. The free market is finally pushing it, and we’re all going to be a beneficiary of that because climate change has real consequences in Arizona.”