Are The Boom Years Over For Phoenix's Data Center Growth?

Phoenix, one of the largest data center hubs in the U.S., may soon see a decline in the development pipeline for the facilities, CRE experts said. 

“The data center wave may be cooling off here in Phoenix, just given the lack of available electrons,” Josh Tracy, senior vice president of real estate development at Ryan Cos., said during Bisnow’s Phoenix State of the Market event on Nov. 18.

The Phoenix metro area is home to 154 data centers. Major data center players include Google, which is constructing a 750K SF Mesa campus slated for completion by 2030, and Microsoft, which boasts a campus in El Mirage and is looking to expand its five-building, $1.5B campus in Goodyear. 

Phoenix has long been a draw for companies looking to build data centers thanks to relatively inexpensive power, relaxed environmental and labor policies, and tax incentives, among other things.

But its hot streak in developing these facilities may be coming to an end because of infrastructure constraints.

Data centers are pushing Phoenix’s power grid to the brink, Arizona's Family reported in July. The facilities use about 350 megawatts of electricity from APS, Arizona’s largest electric utility provider. The utility already has turned away potential data center customers because of the amount of electricity their projects would require. 

While APS is working to expand its capacity, such an expansion will take time. That has developers concerned about future data center growth.

“It’s almost impossible, if you don’t have a firm commitment of power, to get any electricity in the valley … before the 2030s,” Tracy said during the panel at the Hyatt Regency Phoenix. “And our hyperscaler clients aren’t interested in waiting.”

Companies looking to develop data centers in Phoenix must ensure there is power and water availability for potential development sites, Chad Riddle, civil and site development department manager with Colliers Engineering & Design, told Bisnow earlier this year.

"Otherwise, the building could sit collecting cobwebs while local authorities figure things out," Riddle said.

There also has been increasing public concern about data center development. Voters are starting to push back against the centers for their power usage and environmental impact, and regulators have begun to take notice. 

The Phoenix City Council voted in July to start regulating where to put data centers, for example. They join a wave of states, metros and electric utilities crafting rules to contend with skyrocketing demand for and resource consumption by data centers.

John DiVall, regional partner for Panattoni Development Co., said during the panel discussion that he expects other municipalities to follow Phoenix in writing new regulations for data center development. The boom cycle for data center development in the area is likely over, he said.

“We’re over-data-centered, and that’s why you’re seeing more of the municipalities around the Valley essentially ban them,” DiVall said. “I don't think you're going to see a lot of mega-data centers here anymore."

Despite the anticipated slowdown of supply in the Phoenix area, the demand for third-party data centers nationally quadrupled between 2020 and 2024 and is still growing, according to an APM Research Lab report.

This means that, eventually, data center developers and operators will still need to work with regulators to meet demand, panelists said.