Data Center Solutions

Greater Phoenix Market Overview

The Greater Phoenix Metro area experienced a surge of activity throughout 2019 including an increase of supply potential for more development across the current data center landscape. There are a handful of providers in the market looking at development plans in both Mesa and Goodyear, with some already under construction.

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Expansion

Aligned Energy

2500 West Union Hills

Aligned Energy continues to demonstrate the ability to deliver commissioned space within 90 days of contract. Having filled its Phase I, Aligned continues with constructions efforts on the next 84,000 square feet and 20 MWs of shell in its east wing of available expansion space, with 120-day delivery to fully commissioned space.

CyrusOne Building 1

2495 South Ellis Street

CyrusOne recently finished construction on the shell of their seventh building (Building 10) and have plans for an additional building (building 9), which will both consist of 160,000 square feet and up to 36 MW per building. In addition, CyrusOne purchased a 68-acre development site in East Mesa for a 5-building campus and up to 198 MW of critical IT Power.

Iron Mountain

615 North 48th Street

Iron Mountain finished construction on a new 3-story building on the south side of the property in Q3 of 2019.

The data center space is 309,000 square feet (100,000 SF per floor) and approximately 48 MW of power. The first 3-story phase offers 12 MWs of designed critical load per floor. The first floor of this phase has approximately 4 MWs.

The second phase will consist of an additional 3-story structure sharing a common wall with phase 1.

New Developments

RagingWire

NW E Elliot Road and S Signal Butte Road

RagingWire Data Center recently acquired ±100 acres in East Mesa for data center development. RagingWire’s land is located on Elliot Road and in close proximity to Digital Realty, CyrusOne, and EdgeCore. RagingWire is currently the only data center provider with frontage on Elliot Road.

Stream Data Centers

2950 South Litchfield Road

Stream purchased approximately ±150 acres of land, including a 400,000 square foot building, on February 2019. The site is located just south of the Goodyear airport and adjacent to one of the three Microsoft’s sites. Stream has started construction on the roof of their existing building with plans to deliver space by mid-year 2020.

Vantage Data Centers

TBD

Vantage purchased ±50 acres of land in December of 2018. The site is located on Van Buren and Bullard Avenue. Vantage is planning on constructing a hyperscale facility with their own designated substation.

Compass

850 & 150 S Bullard Avenue

Compass Data Centers acquired approximately ±225 acres in two separate land deals in May of 2019. The site sits next to the land acquired by Vantage on Van Buren Street and Bullard Avenue. They plan on having the shell of their first two buildings built out by Q1’20.

Quality Technology Services

22271 Broderick Drive,Sterling

QTS purchased approximately ±87 acres of raw land at public auction in July 2017. The land is located at 40th Street and McDowell in Phoenix and has received zoning and approval to build up to 2 million square feet. Power infrastructure is being finalized. There is no commitment date for breaking ground.

EdgeConneX

3858 Walnut Street, Suite 133,Denver

In 2017, EdgeConneX purchased approximately ±170 acres in Mesa for development. Of this land, ±50 acres will be retained along the north side. The remaining land with frontage along Elliot Road will be sold for non-data center use. There is no schedule at this time to begin construction on the first phase.

Pricing

End-user favorability

Pricing across Greater Phoenix is favorable for end-users due to predicted downward pressure on wholesale colocation rental rates. Aligned Energy, CyrusOne, and Digital Realty, will be cost competitive in winning large requirements as they bring new supply.
Other national colocation operators entering Phoenix with development plans, such as QTS Data Centers, EdgeConneX, EdgeCore, Vantage, Stream, and Compass will produce an even more competitive landscape.
The Arizona Computer Data Center Program, which allows eligible tenants to have sales and use-taxes abated, supported by the business-friendly climate in Arizona, creates tremendous desirability for companies headquartered in California where the cost to do business is far greater.

Average Pricing

cost per kW

Cost of Power

cost per kWh

The cost of electricity across Greater Phoenix is an approximate range of $0.065 to $0.069 per kilowatt hour. With the power rates in Silicon Valley, California ranging from $0.11 to $0.15 per kilowatt hour, Arizona offers more than 50% in power cost savings.
APS & SRP rank as top business service providers delivering quality, reliable and redundant power service.

Power

Phoenix Energy Supply

Arizona’s diverse fuel supply mix decreases the risk of fuel unavailability, smooths our prices and safeguards against regulation.
The Palo Verde Nuclear Generating Station just outside of Phoenix is the largest nuclear facility in the country rated 3,937 net MW per year.
The Solana Generating Station supplies Arizona with 280 MW of electricity. Completed in 2013, Solana is the largest parabolic trough system in the world can store six hours of molten salt thermal energy for night time electricity production.
Arizona’s Renewable Environmental Standard requires 15% of the state’s electricity consumed in 2025 to come from renewable energy resources.
In 2014, 7.8% of Arizona’s electricity came from renewables, primarily form the Glenn Canyon and Hoover Dams.

Trends

Supply

The Greater Phoenix metro area continues to thrive as a healthy wholesale colocation market. Aligned Energy, CyrusOne, EdgeCore and Iron Mountain are preparing to deliver an influx of new supply to the Phoenix market as soon as mid-year. This influx of supply, along with the diversified, growing competitive landscape has resulted in downward pressure on wholesale pricing making Phoenix a predominantly tenant-favorable market.

Due to an attractive data center tax program, consistent diverse fuel mix and vibrant data center landscape aided by low susceptibility to natural disasters, Phoenix continues to provide one of the lowest total cost of occupancy markets for data center operations.

Demand

From a demand perspective, Greater Phoenix has recognized increased absorption by cloud and software-as-a-service (SaaS) companies. This trend has resulted primarily from enterprise data center migration as they transition their infrastructure and software needs toward public and private clouds. From an end-user and industry perspective, this market has maintained a mix of banking, financial services, ecommerce, software, healthcare, and technology based-companies.

This metropolitan area has attracted significant attention by new national operators looking to make a push into the market due to the impact cloud service providers are making on a national scale and the relatively low absorption Greater Phoenix has yet to recognize from cloud companies. Operators like Vantage Data Centers, Stream Data Centers, and Compass Data Centers have acquired land with plans to build while others continue to include Phoenix as a leading emerging market in their strategic portfolio planning.

With the continued growth of cloud computing and the large-scale requirements that the cloud operators will inevitably provide, Greater Phoenix is positioned well to appeal to this user group. Apple’s 1.3 million square foot, 200 MW data center in East Mesa with the addition of Microsoft’s planned Data Center campus on 267 acres in Goodyear is testament of the market’s maturity into the future of cloud and hyperscale.

Greater Phoenix Market Overview

35 wholesale & retail colocation data centers are located in the Greater Phoenix area.

The average transaction size in Greater Phoenix: 500 kW to 2 MW

21 ^%

21 percent of the users are in the Tech Industry

37.5 MW of supply is under construction and 208 MW are planned.

End-user favorability

Multiple long-haul routes connecting Phoenix to California and the midwest
Arizona Computer Data Center (CDC) Program that abates sales & transaction privilege taxes for qualifying data center operators/developers and end user customers
State-of-the-art, highest availability power, water and telecommunications infrastructure
Minimalist regulatory approach - no corporate franchise tax and constitutionally recognized as a Right to Work state
High quality end users such as eBay, PayPal, GoDaddy, American Express, Charles Schwab and many others
Proximity to California & low cost of doing business
Diverse fuel mix including many renewable energy resources; Arizona ranked second in 2015 in solar energy generation
Ranked in the top 10 for low catastrophic and natural disaster risk
APS & SRP rank as top business service providers delivering quality, reliable and redundant power service
Highly skilled, low-cost workforce in STEM-related industries
Attractive real estate costs combined with excellent utility infrastructure that can meet the most demanding manufacturer
GPEC, ACA and other city departments work cohesively to expedite the permitting process

Absorbtion Trends

Supply Trends

Taxes

Arizona data center sales tax exemptions

Sales tax exemptions for sales and use taxes are provided for data center equipment for owners, operators and colocation tenants of computer data centers who are certified by the Arizona Commerce Authority (ACA).

Colocation Tenants

A qualified colocation tenant is an entity that enters into a contract with the owner or operator of a computer data center for an IT load of at least 500 kilowatts per month for a period of two or more years.

New Data Centers

To qualify for tax relief as a new data center, it requires, within five years of certification, that an owner or operator make a minimum investment of:

$250 million during the period between September 1, 2017 and August 31, 2013
$50 million if located in Maricopa or Pima County and is not a Greenfield SRP
$25 million if located in a county other than Maricopa or Pima County and is not a Greenfield SRP
$200 million if it is a Greenfield SRP

What is the qualification period for the tax abatements?

Upon certification, owners, operators and qualified tenants will receive a tax exemption for 10 years for prime contracting transaction privilege tax, retail transaction tax and use tax, and power consumption taxes.

If the data center qualifies as a sustainable redevelopment project, the qualification tax benefit period increases to 20 years.

What is a Sustainable Redevelopment Project?

A sustainable redevelopment project is defined as a data center that satisfies investment requirements described above and that occupies or will occupy the structural improvement at an existing facility that either:

Was at least 50 percent vacant for 6 of the last 12 months before the acquisition by purchase or lease of or with respect to the facility
A newly constructed data center with a minimum $200 MM investment. AND
Attains certification under the Energy Star or Green Globes Standard, the Leadership in Energy and Environmental Design (LEED) green building rating standard developed by the United States Green Building Council, or an equivalent green building standard that was not previously certified under these standards.

Program Benefits

A CDC Owner, Operator or Qualified Colocation Tenant may claim exemptions from transaction privilege tax and use tax in connection with qualifying purchases of CDC Equipment delivered to and installed at the CDC within the respective purchaser’s Qualification Period by providing the vendor documentation supportive of the exemption.

Requirements for Program Benefits

The Facility is predominantly used to house working servers and, therefore, the Facility qualifies as a CDC OR
The CDC does not generate electricity for resale purposes or generate, provide or sell electricity outside of the CDC AND
The CDC is certified by Commerce after submission by the CDC Owner or Operator of a complete and correct application for certification AND
Qualifying investments of at least the relevant amount and within the relevant time period are made by qualifying persons or entities at the CDC AND
Qualifying purchases of CDC equipment delivered to and installed at the CDC are made by the CDC Owner, Operator and/or Qualified Colocation Tenants within the respective Qualification Period following presentation to the equipment vendor of documentation supportive of the exemption.

Sample Tenant Benefits

If Tenant were to occupy/utilize 500 kW to 1,000 kW in their data center facility, they could benefit from the following state, county and local taxes:

Transaction privilege taxes (under the retail classification of A.R.S. § 42-5061)
Use taxes on qualifying purchases of CDC equipment
A tax exemption for 10 years for prime contracting transaction privilege tax, retail transaction tax and use tax, and power consumption taxes. If it is a Sustainable Redevelopment Project, the exeption increases to 20 years

Necessary steps Tenant would need to complete to receive such benefits:

Provide Commerce the information set forth in subsection III.C.4.b, which include:

Federal tax identification number
Verification that the tenant is enrolled in the Federal E-Verify Program
The number of kilowatts per month authorized for use by tenant in its agreement with the Owner or Operator for occupancy at the CDC
Copy of the lease or other contract between the tenant and the Owner/Operator-Applicant governing use or occupancy of all of part of the CDC by the tenant