Posted By Rich Miller On June 21, 2011 @ 7:30 am In New York | 1 Comment
DuPont Fabros Builds Big
The DuPont Fabros data center in Piscataway represents the largest single chunk of space. The project is consistent with the development strategy at DuPont Fabros , which typically builds its facilities in two phases, each with 18 megawatts of power capacity.
“New Jersey is a market that will absorb what we’ve built,” said Mark Wetzel, the Chief Financial Officer of DuPont Fabros. “It’s a great market to be in. We’ve built 18 megawatts, and we’ve leased 4 megawatts, so we’re a big part of that inventory.”
The company projects that it will take 24 months to lease up the first phase of NJ1, which opened ;ast fall. That’s the same timeline seen at the company’s project outside Chicago, which like New Jersey features enterprise users rather than fast-growing Internet companies.
“Decision-making is an elongated process at all these companies,” said Wetzel. “There’s competition with Digital and Sentinel, but we think our product will match up against our competitors. We’ve always said that our biggest competition is people building their own data centers. In New Jersey, there’s lots of banks that have never outsourced.”
Will DuPont Fabros’ need to fill its facility lead to more aggressive pricing? Wetzel says no. “We’ve signed three leases and the pricing has been firm,” said Wetzel.
Digital Realty’s Foust echoed those sentiments. “We have not experienced changes in pricing, and New Jersey is still a very strong market for us,” said Foust. “We’re not seeing any pricing trends that indicate there is oversupply in the market.”
The Modular Wild Card
The wild card in the New Jersey market is i/o , the colocation provider that acquired a huge former New York Times printing plant in Edison and plans to fill it with modular data centers. The Phoenix-based company sees its factory-built i/o Anywhere enclosures as the future of the data center business, offering a predictable energy-efficient design that can be deployed rapidly and bought in smaller installments than wholesale space.
“I think there’s going to be a huge glut of traditional data center space,” says George Slessman, the Chief Executive Officer of i/o. “To me, the story is the difference between Data Center 1.0 and Data Center 2.0. We obviously are going long with Data Center 2.0. We’re removing the necessity to make long-term predictive commitments (for data center space). This is a technology business, and the data center is a fundamental part of the technology.”
According to Slessman, that vision will be validated in New Jersey. He says i/o is already installing customer modules in Edison for an anchor tenant, less than 90 days after getting the keys to the 830,000 square foot building.
The wholesale providers are downplaying the prospect that the i/o New Jersey modular project will disrupt their business.
“We’re not seeing modular offerings make a big dent in the supply curve or the demand curve right now,” said Digital Realty’s Foust. “Modular offerings come in a variety of types, from servers in containers to pre-fab suites, but they are still a niche solution for very specific deployments or as a specific complement to traditional data center space. We have seen limited adoption by our target corporate enterprise customers.”
“The container buzz with i/o is just a buzz,” said Wetzel, the DuPont Fabros CFO. “Our customers are looking for data center space for the long term. The container space, in our mind, is not a long-term solution.”
Some real estate professionals say its not clear whether modular offerings could impact demand for the wholesale or colo market, but see them as part of an expanding range of options for enterprise data center customers, who are shopping carefully. “I think the wholesale guys are kidding themselves if they think there’s not some competition there,” said Michael Mandel of Grubb & Ellis’ National Data Center Practice . “What we’re seeing across the board is a blurring of wholesale and colo.” (See our previous coverage  of this trend).
Slessman, who has heard plenty of skepticism about modular designs, is content to let the customers decide. “The proof’s in the pudding,” he said. “We’re seeing plenty of demand. Customers are embracing the new model, and we’re seeing early adoption with very big brand names.
“New Jersey is already successful for us,” Slessman added. “My investment is incremental. I’ve already covered my fixed costs, and I only build if I have a customer. If it weren’t working for me, I’d pick up my modules and go back to Phoenix. But I’m not about to do that.”
The Road Ahead
In the short term, the New Jersey wholesale market will be carefully watched for signs that the additional space is being absorbed. DH Capital’s Golding believes any oversupply will sort itself out over time. “The bottom line is that the data center market is like all other real estate markets – it is possible to overbuild and if you do, it will take a while to correct,” he said. “When it happens, the market will usually overcorrect.”
Other Jersey-watchers say market dynamics can shift quickly. “Before DuPont and Sentinel were on the scene, if Digital signed a 10,000 square foot pod, it significantly changed the wholesale market,” said Mandel of Grubb & Ellis. “If a couple of 10,000 square foot deals get done in New Jersey, people will look at this market very differently.”
Article printed from Data Center Knowledge: http://www.datacenterknowledge.com
URL to article: http://www.datacenterknowledge.com/archives/2011/06/21/the-nj-market-dupont-io-projects-in-spotlight/
URLs in this post:
 Continued from previous page: http://www.datacenterknowledge.com/archives/2011/06/21/is-the-nj-data-center-market-facing-oversupply/
 DuPont Fabros: http://www.dft.com
 i/o: http://www.iodatacenters.com
 Grubb & Ellis’ National Data Center Practice: http://datacenterpractice.com/
 previous coverage: http://www.datacenterknowledge.com../archives/2010/08/12/wholesale-colo-players-compete-on-more-deals/
 Rich Miller: http://www.datacenterknowledge.com/archives/author/richm/
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