Driven by demand from cloud service providers and large tech companies, Phoenix saw the sixth-most data center leasing in North America in 2020, according to CBRE’s latest North American Data Center Trends Report.
Year-over-year net absorption in Phoenix was 17.5 megawatts (MW) in 2020, up 38 percent from 2019, despite 9 MW of new supply coming online last year. The metro’s vacancy rate of 6.7 percent at the end of last year is the lowest since 2016, while average asking lease rates remained steady in 2020 at $115.
Phoenix has seen increased demand for investment in and development of freestanding data centers with large enterprise customers looking throughout the metro area to purchase assets. Mesa, in particular, is in the midst of a development boom, with technology and cloud service companies purchasing 480 acres there in 2020 for data center construction. 28.1 MW of supply is currently underway in the Phoenix area.
“The metro Phoenix data center market has really matured over the last 36 months,” said Senior Vice President Mark Krison. “It is now on every radar screen from enterprises to cloud providers. Reasonable land pricing, few natural disasters and competitive power pricing all together provide the perfect storm for companies looking for space and power.”
Data centers, one of the fastest growing real estate sectors pre-pandemic, remained strong in 2020 as businesses reconfigured their digital infrastructure to improve their remote work capabilities, and tech giants and cloud service providers raced to meet consumer and corporate demand, according to CBRE.
The firm’s latest shows 329.6 MW of net absorption in 2020 across the seven primary U.S. data center markets. While down 11 percent from the peak in 2019, 2020 absorption was still higher than any other year on record. Meanwhile, vacancy fell to just 8.5 percent, despite an 11 percent growth in new supply.
“With data usage growing at an explosive rate, we expect data center demand to increase across both primary and secondary markets in 2021,” said Pat Lynch, Senior Managing Director, Data Center Solutions, CBRE. “To capitalize on this growth, data center providers will look to deliver network and interconnection offerings to better connect business-critical applications, as well as to meet anticipated demand for evolving technologies like 5G, Edge computing and the internet of things—all of which will further fuel the data center real estate market.”
Top North American Data Center Markets
Strong demand and an uptick in investor interest in direct investment due to the strong performance of data center REITs in 2020 resulted in a 457.8-MW data center construction pipeline in the primary markets, up 62 percent from the end of 2019. More than half of the current pipeline is pre-leased.
Other markets with significant construction pipelines include Montreal (57 MW), Silicon Valley (50.1 MW), Central Washington (43.7 MW), Hillsboro, Oregon (40.5 MW), and Chicago (33.7 MW).
*The seven primary U.S. data center markets are Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta.