Phoenix data center market poised for massive growth in 2018

Real Estate | 3 Apr |

The Phoenix data center market saw strong leasing momentum in the second half of 2017, according to a new report from CBRE. This was reflected by positive net absorption of nearly 3 megawatts (MW) in H2 2017, although this total doesn’t reflect the nearly 8 MW of leasing activity over the same period.

The market’s net absorption for the full year totaled 6 MW.

The data center sector’s sixth-largest market in the U.S., Phoenix had an additional 28 MW of wholesale capacity under construction at year-end, third most in the U.S., behind only Northern Virginia, and Dallas/Ft. Worth.

“As the world continues to move toward an everything-as-a-service mindset, hyper-scale cloud companies will continue to seek out more space to accommodate the growing demand,” said Luke Denmon, leader of CBRE’s Data Center Practice in Phoenix. “Arizona will remain top of mind to those users because of its diversity in providers and market, strong incentives programs and lower operating costs. While we saw a healthy expansion of Arizona’s data center market in 2017, there is a massive swell of development and absorption is on its way in 2018.”

National Trends

Investment in the U.S. data center sector reached record levels in 2017, totaling more than $20 billion (inclusive of all single asset, portfolio and entity-level/M&A transactions), surpassing the volume for the three previous years combined.

2017 investment activity was heavily weighted by several large entity-level transactions, as data center providers and users sought to monetize certain assets and migrate to hybrid IT environments. For example, Digital Realty acquired DuPont Fabros and its 12 assets and BC Partners/Medina Capital/Cyxtera Technologies purchased CenturyLink’s 57-asset data center portfolio.

Other report findings include:

• Heightened demand from multi-megawatt hyperscale cloud users led to record wholesale positive net absorption in 2017

• Accelerating data needs from hyperscale providers and elevated enterprise IT spending trends are driving demand for hybrid cloud architectures

•  Northern Virginia, Silicon Valley, Dallas/Ft. Worth, Chicago and New York Tri-State saw the most leasing activity in 2017.

“The U.S. data center sector continues to thrive, evidenced by record investment volume and positive net absorption, and elevated levels of new supply across the major markets,” said Pat Lynch, senior managing director, Data Center Solutions, CBRE. “We have strong expectations for 2018 and beyond as operators, investors and end-users all seek opportunities to maximize efficiencies, enter new markets and utilize new service offerings.”

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