Reporter- Aug 28, 2014Phoenix Business Journal

The Phoenix metro area has the most active leasing market and the second largest multi-tenant data center market in the country, according to a new report.

CBRE’s Data Center Solutions Group’s quarterly, mid-year report also shows the local market has 17 megawatts of expansion construction underway and two new providers expected to enter the market next year.

Luke Denmon, a Phoenix market leader for the Data Center Solutions Group, said part of the growth is attributed to the new statutory tax incentives and consistently low power costs in the area.

“Data center supply and demand is like an inchworm. We had a lot of inventory taken up by Digital Realty (Trust Inc.) and Cyrus One,” Denmon said. “Tenants looking for real-time, ready-to-go inventory makes the market really attractive.”

A bill signed into law in June 2013 gives the state a competitive edge with tax exemptions for new data center building and infrastructure. The incentives, which began Sept. 1, are for the owner, operator and co-location tenants of data centers after meeting certain requirements.

Ascent, a St. Louis-based data center company with a large presence in Chicago, has chosen Glendale for its westernmost expansion, Denmon said. Although the company has not yet announced construction plans and is looking for an anchor tenant, plans are to build on purchased land near 47th and Glendale avenues, he said.

The other data center provider is a well-known, institutionally-known operator, but has not yet announced plans publicly. The provider will be opening in Phoenix, Denmon said.

“The thing to be aware of is out of every major metro market west of Mississippi, Phoenix has the lowest total occupancy rate,” Denmon said. “We have moderate electricity costs, lower build costs because we’re a non-union construction state and significantly lower tax burdens.”

Phoenix is behind northern Virginia’s market in its data center inventory. That area is such a hot market for data centers because its one of the earliest places to get fiber optics, and has several large headquarters in the area, including Verizon and AOL.

“Phoenix is the only data center market that has non-organic characteristics driving the market,” Denmon said. “It’s a good data center market because the power has a consistent supply, the weather is stable and we have cheap land to build on.”

Phoenix also has the broadest mix of tenants, from travel sites to aerospace to retailers, he said.

The report also shows that Phoenix:

  • Has 209 megawatts of total supply, which is 24 megawatts higher than last quarter.
  • Had 26.2 megawatts of new deals in the second quarter, which is 23 megawatts higher than last quarter.

“The new activity is driven by a mix of cloud service providers, Internet enterprises and bitcoin mining operations,” Denmon said. “We’ve got a pretty vibrant market activity between new tenant tours and existing tenants recasting their leases.”