Phoenix registers 2nd-most data center leasing in North America
Phoenix had 20.0 megawatts (MW) of net absorption in H1 2021, a 70 percent year-over-year increase. The market also saw the highest percent growth among primary markets, adding 28.7 megawatts (MW) of new inventory in the opening half of 2021, up 12 percent from the second half of last year. This was largely due to three providers bringing capacity to market.
Phoenix providers leased more space and power in Q2 than any other quarter in the previous five years as the region’s proximity to major West Coast metros, affordable land rates and abundant power availability attracted new users.
“It comes down to available land and climate quality,” said Senior Vice President Mark Krison. “You have three things that make the Greater Phoenix area so attractive to data center users. First, you don’t have natural disasters that could impact operations. Second, there is still available land with access to quality power and third, the cost of electricity is competitive with other western states. Another reason for high user demand? Low latency. The time it takes for information to travel from, say Los Angeles to Phoenix, is low. As such, California is a major market served from Arizona.”
He added, “Given all that, transactions involving hyperscale datacenters, often associated with big data-producing companies, are more active now than in the past two years.”
National trends in data center leasing
North American data centers saw a growth in construction and net absorption in this year’s first half as cloud service providers and social media companies drove demand, according to CBRE.
Providers brought 214.3 megawatts (MW) of new wholesale colocation supply online in the seven primary U.S. data center markets* in the first half of 2021, an increase of 7 percent from the year-earlier period. However, vacancy remained low across those markets – as scant as 1.6 percent in Silicon Valley – amid persistent demand.
Relief from tight vacancies likely will come from the 527.6 MW of capacity currently under construction in primary markets. That figure marks a 42 percent increase from a year earlier.
“We’ve seen no indication that the amount of data used is leveling out, so demand for data centers will increase across both primary and secondary markets,” said Pat Lynch, Senior Managing Director, Data Center Solutions, CBRE. “Hyperscale users are beginning to position themselves closer to end users to support technologies including 5G, artificial intelligence and blockchain technology. As this interest in edge computing and edge data centers continues, we expect to see a heavier appetite for data centers from investors who are starting to view data centers in the same category as more traditional real estate sectors.”
Top North American Data Center Markets
Northern Virginia remained the most active data center market with net absorption of 70.6 MW in H1 2021 – more than triple that of Phoenix, the next highest market.
Net absorption totaled 142.7 MW across the seven primary markets in the first half, an increase of 3.4 percent from the first half of 2020.
10 Most-Active Markets
Data center users leased more space in the first half of 2021 than in H2 2020 despite fewer deals being signed during this period. Phoenix saw more leasing activity in Q2 2021 than any other quarter in the previous five years. However, several markets including Northern Virginia and Dallas, saw a drop in absorption year-over-year as some users consolidated their operations.
Of the construction underway at the end of the second quarter, 317 MW (60 percent) has been pre-leased. Markets with notable pre-leasing activity include Silicon Valley, where 70 MW (82 percent) of the total MW under construction was spoken for, as well as Dallas (17.5 MW), Chicago (17.1 MW), New York Tri-State (13.1 MW), Phoenix (6 MW) and Atlanta (3.5 MW).