The Phoenix Region Serves as an Excellent Top 10 U.S. Data Center Market and Should Expect Further Growth

The metro Phoenix area is considered one of the Top 10 Data Center Markets in the U.S. — as high as No. 6 by some measures. While the “Valley of the Sun” is not in the top 10 for population, its data center market share is a direct function of its many competitive advantages: a desirable and affordable western market for colocation, cloud, enterprise and all other data center users. Phoenix has always been a significant draw from Silicon Valley and Southern California enterprise corporations seeking competitively priced and safer alternatives to colocate their IT equipment. They see Phoenix as an excellent disaster recovery and business continuity solution. We take a look at why Phoenix should expect continued and sustained growth.

Over the past two years, Phoenix has experienced all-time highs in data center demand and colocation construction of new raised floor environments has kept up.  Following a record year in 2016, Phoenix’s data center and colocation market in 2017 jumped to over 30 MWs of absorption. While not quantified, several resources are reporting that 2018 should exceed that demand. Phoenix has become a logical market for the accelerating needs of the large hyperscale cloud users, expanding enterprise customers and software-as-a service corporations. In addition, Phoenix is a desirable location as an edge data center market as major social media companies and competitors complete their geographic networks.

Phoenix’s competitive advantages extend from its minimal hazardous risk factors to its business-friendly environment. It also has two great electrical providers, Salt River Project and Arizona Public Service (APS) that provide power at electrical rates much cheaper than many of the other western markets that compete with Phoenix (such as Denver and Salt Lake City). Available land sites with significant infrastructure in place to construct new facilities are reasonably available, along with available economic incentives.

Phoenix data center history and geographical layout

During the late 1990’s Internet boom, Phoenix’s data center geography was concentrated in two areas. The first was in the downtown and surrounding core in such carrier hotel and colocation facilities as 120 East Van Buren and Central Park Mall. The second submarket was focused around Sky Harbor Airport and Tempe where several telecom carriers built out their switch and colocation sites due to the ease of construction and significant power and fiber infrastructure in place.

Fast forward to the latter of half the 2000s. One of the first major players dedicated to multi-tenant colocation was I/O Data Centers, which was recently acquired by Iron Mountain Data Centers. Before big was the norm for colocation operators, I/O retrofitted a robust ~500,000 SF facility in 2007 just north of the airport. As colocation and powered shell options gained popularity, the data center and colocation operators continued to focus on the Airport submarket but also started to concentrate in the suburban Chandler submarket further south of Phoenix in Salt River Project utility territory. Large colocation operators such as CyrusOne and Digital Realty along with up-and-coming groups such as H5 Data Centers have substantial Chandler operations.

A developing concentration of operators is located north of Phoenix in the Deer Valley submarket, where APS is the electrical provider. Flexential and Aligned Data Centers are the primary competitors.

The competitive landscape and market statistics

As Phoenix continues its year-on-year record absorption, the competition is comprised of several heavyweights in the retail and wholesale colocation sectors. And some new competitors have also pushed into the market.  Here’s a list of some of the notable competition in this data center sector: 

• CyrusOne: Since entering the Phoenix market in 2011, CyrusOne has become the largest data center operator in the market offering colocation halls up to 60,000 SF, powered shells and greenfield build-to-suits. With over 85 acres of secured campus, the total development could exceed 2 million square feet, with nearly 500,000 SF of existing raised floor environment.
• Digital Realty: Already owns the primary carrier hotel at 120 East Van Buren totaling 175,000 SF but also has its Chandler Price Road Campus with over 520,000 SF and up to 60 MVA of power, not including future expansion.
• Iron Mountain Data Centers: With its acquisition of I/O Data Centers, Iron Mountain instantly became one of the major players in the market. They have capitalized on this dominance with its recent announcement that they will double the campus size by spending over $430 million to add 550,000 SF and 48-megawatts
• Aligned Data Centers: an “infrastructure technology company that offers colocation and build-to-scale solutions to cloud, enterprise and managed service providers”, Aligned has become an important new competitor with its 51-acre campus that could total 550,000 SF and 120 megawatts. The company just announced its second phase will commence with over 200,000 SF and 60 MWs with a guaranteed PUE of 1.15. While Aligned offers large wholesale colocation, Evocative Data Centers provides managed colocation in the same facility for customers of ~1 MW or less.
• Flexential: With its joint venture relationship with Cox Communications, Flexential (renamed after the ViaWest and Peak 10 merger) acquired the Cox data center in Deer Valley expanding it with over 40,000 SF and 5 MWs of colocation space.
• H5 Data Centers: H5 entered the Chandler market with its acquisition of an existing 180,000 SF data center that H5 substantially upgraded to offer up to 30 megawatts of both retail colocation and wholesale colocation.

Sources: Company websites

Conclusions

Phoenix’s numerous strengths to deliver enterprise class data center operations will allow it to solidify its No. 6 ranking for the next several years. The demand here is actually exceeding some markets that are currently higher ranked.  With all of the favorable factors meeting all of the data center site selection checklists, the Phoenix market should expect to continue its upward growth curve.