Driven by demand from cloud services companies, Phoenix saw the eighth-most data center leasing activity in North America in H1 2020, and remains the fifth-largest data center market in the country, according to CBRE’s latest North American Data Center Trends Report.
Phoenix saw 6.0 megawatts (MW) of net absorption in H1 2020, on par with what metro Phoenix saw during the same period a year earlier. While 3.7 MW of capacity was added over the last year, the market’s vacancy rate dropped 410 basis points year-over-year to 8.0 percent.
With 28.1 MW under construction, the market currently has the fifth-largest construction pipeline, behind Northern Virginia (239 MW), Montreal (55 MW), Central Washington (43.7 MW) and Atlanta (28.5 MW).
“Metro Phoenix has a very healthy data center market, with growth expected over the next 48 to 60 months,” said Mark Krison, senior vice president with CBRE in Phoenix. “Major colocation providers will continue to build in the metro because of availability of land, fiber connectivity and clean power. Phoenix’s robust supply pipeline should drive demand from large hyperscale users.”
The North American data center sector was resilient in the first half of 2020 as many businesses implemented hybrid IT infrastructure to improve their remote work capabilities and streaming content providers saw increased viewership due to the COVID-19 pandemic.
The seven primary U.S. data center markets saw 134.9 megawatts (MW) of net absorption in H1 2020—down from record levels in the first halves of 2019 and 2018, but still higher than the same period in 2017 and 2016. The vacancy rate in the primary markets dropped 70 basis points year-over-year to 10.3 percent despite a 5 percent growth in inventory during H1. The decline in net absorption in H1 2020 was largely due to increased supply.
“The economic slowdown will force companies to scrutinize every dollar of their IT spending, but continued investment in mission-critical IT infrastructure like data centers and cloud services will be imperative to supporting business continuity and remote working,” said Pat Lynch, Senior Managing Director, Data Center Solutions, CBRE. “The outperformance of data center REITs compared to other public real estate securities so far in 2020 has brought new investor interest to the sector, which will likely result in increased development activity.”
Top North American Data Center Markets
Northern Virginia remained the most active data center market, with net absorption of 93.2 MW in H1 2020.
Strong demand over the past several years has resulted in a 373.6-MW data center construction pipeline in the primary markets, a third of which has been pre-leased. Northern Virginia accounts for 64 percent (239 MW) of the construction pipeline in the primary markets.
*The seven primary U.S. data center markets are Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta.