Phoenix 3rd for Data Center Rankings

Credit: JLL

By JLL

A strong resurgence in enterprise-level demand was felt across the top major data center REITs in the first half of 2021. Financial, technology, and healthcare companies drove much of this demand. Spend on public cloud services is projected to grow by 8.4% in 2021 reaching $4.1T, according to Gartner.

Data center providers and occupiers continue to make inroads with their sustainability goals. With health, wellness, and sustainability at the forefront of corporate agendas, the data center industry is feeling the heat to use more efficient systems, renewable energy, and carbon-cutting practices.

Last year was a record-breaking year for mergers and acquisitions and data center investment. While activity is below last year’s pace, the largest data center deal on record was announced in June of 2021. Investment firm, Blackstone, purchased QTS Realty for $6.7B, $10.0B assuming debt, which puts it ahead of Digital Realty’s $8.4B purchase of Interxion in 2020.

The global construction pipeline remained robust in the first half of 2021. In the United States, construction ramped up from 611.8 MW in the end of 2020 to 680.8 MW in the first half of 2021. The pipeline virtually stayed the same in the first half of 2021 compared to year-end 2020 in Europe.

Demand is on pace for another strong year for data centers in 2021. Cloud, technology, and social media companies continue to drive near-record levels of demand across the globe.

Phoenix

Supply: Existing inventory is tight and new construction is underway. 50 MW of available data center space exists or is under construction to satisfy insatiable demand.

Demand: Institutional investors target Phoenix data centers and development sites. Recent land sales are reducing available options and increasing price per acre. Recent demand for acquisitions of data center properties have compressed cap rates. Data center and industrial land prices have increased as much as 20-40% in the last 6-12 months.

Market Trends: The price competitiveness is expected to intensify in the Phoenix market. Additional second-generation product will bifurcate the current aggressive pricing environment.

Outlook for Users

  • More supply is being delivered to the market by Q1 2022
  • Flexibility will be crucial to test the residual effect of growth
  • Continued cloud strategy pressures from the C-Suite

Outlook for Providers

  • Be able to deliver contiguous space to end users
  • Pressure from end users to support operational staffing experience
  • Compliance still of high importance for end users. (Source)

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