News Summary
Metro Phoenix is rapidly developing into a major hub for data centers, now ranking second in North America, with a low vacancy rate of 2.3%. With 4.2 GW of capacity in the development pipeline, strong preleasing activity and a significant rise in construction, Phoenix is poised for continued growth despite challenges like rising electricity rates and lengthy grid connection timelines.
Metro Phoenix is experiencing a surge in data center development, ranking second in North America according to the new JLL North America Data Center Report – Midyear 2025. The Valley’s data center vacancy rates have plummeted to an unprecedented 2.3% as demand for digital infrastructure continues to drive the market.
Northern Virginia leads the North American data center development sector with 5.9 gigawatts (GW) planned, while Metro Phoenix follows closely with 4.2 GW in the development pipeline. The Dallas-Fort Worth area and Las Vegas/Reno are also significant players, with 3.9 GW and 3.5 GW planned respectively. In the first half of 2025, the North American data center market absorbed 2.2 GW, positioning it to surpass the record absorption levels of 2024. Phoenix alone accounted for 10 megawatts (MW) of that absorption, indicating strong preleasing activity in previous years.
The construction pipeline for data centers in Phoenix has substantially increased, now reaching 7.8 GW—approximately ten times the volume seen five years ago. This makes Phoenix the leader in construction activity with 1.3 GW under development, followed by Chicago with 1.18 GW, Atlanta with 1.11 GW, and Northern Virginia with 1.06 GW. A notable 73% of all North America data center capacity currently under construction is preleased, maintaining a steady demand for space over the past two years.
Currently, the Phoenix data center vacancy rate stands at approximately 3%, translating to about 31 MW available for lease. Major deliveries scheduled for early 2026 are already preleased, suggesting limited vacancy rates will persist well into 2026. Operators in the data center sector are adapting to market conditions by securing space well in advance, often 18 to 24 months prior to operational needs.
Despite the pronounced demand, commercial electricity rates have increased nearly 30% since 2020, with the average rate reaching 9.7 cents per kilowatt-hour (kWh) in the first half of 2025. This backdrop has stirred interest in alternative locations with lower electricity rates, such as Salt Lake City at 5.7 cents/kWh and Denver at 6.4 cents/kWh. However, Metro Phoenix remains competitive with a power cost of 7.5 cents/kWh.
The current landscape faces challenges, including an average wait time for U.S. grid connection of four years, which complicates resource availability for data centers. Operators and utilities are revising their strategies in anticipation of future energy demands, altering how power studies are conducted, and requiring upfront funding for new developments.
The North American data center market has witnessed a significant 20% compound annual growth rate (CAGR) since 2017, with projections suggesting an expansion to 42 GW capacity by 2030. The market capitalization of the data center sector has increased by 161% since 2019, positioning it second only to the industrial properties sector.
In the first half of 2025, data center financing has shown significant growth, highlighted by increases in asset-backed securities (ABS) and single-asset, single-borrower (SASB) deals. This financial momentum aligns with Metro Phoenix’s status as a key data center hub, attributed to its combination of low-latency access, competitive power infrastructure, and pro-business policies—factors that contribute to its continued growth potential within the sector.
As demand for digital infrastructure shows no signs of abating, the burgeoning data center industry in Metro Phoenix reflects not only a local trend but a critical component of the evolving North American technology landscape.
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Additional Resources
- AZ Family: Data Centers Pushing Phoenix Area’s Power Grid Limit
- Wikipedia: Data Center
- Ahwatukee: Phoenix Planning Commission OKs Data Center Restrictions
- Google Search: Phoenix Data Centers
- AZ Central: Arizona Data Centers Could Threaten Environment
- Encyclopedia Britannica: Data Center
- ConnectCRE: Phoenix Ranks 2 in Data Center Development Pipeline
- Google News: Phoenix Data Center Development
Author: STAFF HERE PHOENIX WRITER
PHOENIX STAFF WRITER The PHOENIX STAFF WRITER represents the experienced team at HEREPhoenix.com, your go-to source for actionable local news and information in Phoenix, Maricopa County, and beyond. Specializing in "news you can use," we cover essential topics like product reviews for personal and business needs, local business directories, politics, real estate trends, neighborhood insights, and state news affecting the area—with deep expertise drawn from years of dedicated reporting and strong community input, including local press releases and business updates. We deliver top reporting on high-value events such as the Waste Management Phoenix Open, Cactus League Spring Training, and Arizona State Fair. Our coverage extends to key organizations like the Greater Phoenix Chamber of Commerce and Visit Phoenix, plus leading businesses in technology and healthcare that power the local economy such as Intel and Banner Health. As part of the broader HERE network, including HERETucson.com, we provide comprehensive, credible insights into Arizona's dynamic landscape.
