News Summary
The city of Phoenix has decided to delay discussions on new regulations for data center developments until July 2. As demand for data centers surges, proposed guidelines will cover zoning, distance requirements, and energy assurances. Despite two-thirds approval from local committees, concerns remain about the potential restrictions on the booming industry, which is seeing significant economic growth and job creation in Arizona.
Phoenix — The city of Phoenix has decided to postpone the discussion on new regulations for data center developments until July 2, amid escalating demand for such facilities in the area. The proposed guidelines aim to outline key aspects of data center operations, including definitions, zoning regulations, distance requirements, and energy assurances.
The proposed amendments will be a subject of debate among City Council members next month as they tackle the implications of a booming data center market in the region. To date, approximately two-thirds of Phoenix’s village planning committees have given their approval for the amendments, although concerns persist from five committees, with mixed responses regarding their stance on the potential regulations.
Growing Demand for Data Centers
The North American market for data centers is experiencing unprecedented growth, with construction reaching record levels. In Phoenix, the demand for data centers has pushed asking rates to between $170 and $210 for a consumption of 250-500 kilowatts (kW) per month. Currently, the city’s data center inventory has reached 602.8 megawatts (MW), representing a 67% increase compared to the previous year, positioning the city as the fourth largest market for data centers in North America.
Currently, 176 MW of new data center projects are under development in Phoenix, up from 163.5 MW last year. The vacancy rate for data centers has plunged to a historic low of 1.9%, driven by a positive absorption of 245.5 MW during 2024. This drop in vacancy rates reflects the widespread demand for data-driven services, particularly due to advancements in artificial intelligence and digital applications.
National and Local Trends
The national data center construction supply reached an impressive 6,350.1 MW in 2024, more than twice the supply from the previous year. The average national lease rate for data centers has similarly seen a surge, reaching $184.06 per kW/month, a 12.6% increase year-over-year. The trend indicates a robust appetite for data storage and processing capabilities, a necessity as the average American household now connects 21 devices to the internet.
Impact on Arizona’s Energy Landscape
Projected energy consumption by data centers in Arizona could significantly escalate, potentially using up to 16.5% of the state’s electricity by the year 2030. In addition to energy demands, data centers are predicted to generate more than 81,000 jobs statewide, creating substantial tax revenue streams. In 2023, data centers contributed over $863 million in state and local taxes, with investments estimated to add over $25 billion to Arizona’s GDP this year.
To meet future energy demands, utilities such as Arizona Public Service, Salt River Project, and Tucson Electric Power are contemplating the development of a nuclear power plant. This initiative is part of a broader strategy to ensure that the region can sustain the increasing demands posed by expanding data center operations.
Regulatory Challenges
Despite the promising economic potential of the data center industry, concerns about proposed regulations have emerged. Stakeholders have criticized the potential for restrictive measures that could hinder the competitiveness and growth of data center operations in Arizona. The upcoming discussions in July will be critical in determining how the city will balance regulation with the need for continued economic development in this burgeoning sector.
As major technology firms such as Meta, Google, AWS, and Microsoft expand their data center projects in the Phoenix metro area, the demand for regulatory clarity and energy resources will remain at the forefront of city planning discussions. The outcome of the City Council’s eventual decisions could shape the future landscape of Phoenix’s data center industry.
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Additional Resources
- AZ Big Media: Phoenix Ranks 4th Among North American Data Center Markets
- Axios: Arizona Data Centers and Energy Powering AI
- Data Center Dynamics: Arizona Land Consulting Buys Land for Potential 1.5GW Data Center
- Bisnow: Phoenix May Not Have the Workers to Build Its Growing Data Center Pipeline
- Ahwatukee: Phoenix Planning Commission OKs Data Center Restrictions
- Wikipedia: Data Center
- Google Search: Data Centers Arizona
- Google Scholar: Data Centers
- Encyclopedia Britannica: Data Center
- Google News: Data Centers
