A Fresh Take on CRE

Is the New Jersey Wholesale Data Center Market Back on Track?

Reposted from my July 21st Post on on www.datacenterpractice.com.

Two weeks ago,without much fanfare,Sentinel Data Centers announced that it had signed three major leases with “the largest”Fortune 500 firms for an initial aggregate footprint of 50,000 SF of turnkey data center space.  Since Sentinel’s first phase in  Somerset,N.J. represents 50,000 sf of data center space,this means that Sentinel has effectively sold out its first phase.  This press release came three weeks after The Wall Street Journal proclaimed that there was a “glut”of New Jersey data center space.

Meanwhile,we’ve heard from Digital Realty Trust ,that the company is now at 100% capacity in its 3 Corporate Place facility in Piscataway (there were only a few thousand SF left),and as we announced in our last newsletter,DLR leased a large chunk of Powered Base Building  space to Savvis at 365 S. Randolphville Road. That said,Digital has had a new turnkey 11,000 SF POD available in Piscataway for a very long time,and has not yet had success leasing its PBB offering at 650 Randolph Road in Somerset. DLR insiders tell us that the company is planning on building out at least one very large (20,000+ SF) pod in 650 Randolph Road which would be shared by multiple tenants with shared infrastructure. This would be a first for DLR,and according to our sources,the move is being made so that DLR can better compete on price and model with Sentinel and DuPont Fabros.
So what does all this tell us about the New Jersey Wholesale Data Center market? And,why is it that Sentinel has sold out its not yet complete Phase 1,while DuPont Fabros (which built-out over 80,000 SF of turnkey space) has had reported no activity for several months?
The answer to the first question is not simple. It seems that the New Jersey Wholesale Data Center market is improving. The good news from Sentinel and encouraging news from DLR is the most we’ve heard in quite some time,but until we hear more positive news from DuPont Fabros (fingers crossed for the company’s Aug. 3rd earnings call),it will be hard to make a proclamation that the  market is heating up again.
To get the answer to the second question,I reached out directly to Sentinel’s co-CEOs Todd Aaron and Josh Rabina. They offered three factors that are attributable to their success in the New Jersey market;“quality,energy efficiency and flexibility.”
I believe the most notable differentiator for  Sentinel is flexibility. According to Rabina,Sentinel’s  “on demand business model enables tenants to avoid oversizing initial up-front financial commitments,yet retain fixed-price contractual options to seamlessly add space and/or power capacity in the future as needed.”. In the New Jersey market,where corporate users must accommodate the migration from low density legacy systems to modern high density environments,flexibility is key.
We’ve heard from DuPont Fabros,that they have also “gotten the memo”regarding the needs of New Jersey data center users (vs. the Facebooks,Googles,and Yahoo!s of the world),and they are willing to be flexible in accommodating the ramp up of tenants. There is no question that DFT’s purpose built facility is a high quality product,and if the company can provide the type of flexibility offered by Sentinel,they should have the same kind of success in the New Jersey market.
While it’s unclear if the momentum in New Jersey will continue,we are cautiously optimistic,and look forward to more good news moving forward.