Companies selling wholesale data center space say corporate America’s appetite for IT infrastructure remains strong, with some regional variation in demand for data center space and customer timelines for expansion.

Data Center Knowledge touched base with some providers of wholesale data center space in the wake of Tuesday’s earnings report from DuPont Fabros Technology, which said it was seeing slightly slower leasing in several markets, including New Jersey and northern Virginia.

DuPont Fabros said it remained confident that demand for data center space would remain strong, and noted that it leased more than 24 megawatts of space in 2011. But it also adjusted its revenue guidance to account for the moderate pace of leasing.

Other wholesale providers say demand remains solid.

“We just had the largest quarter of new signed leases we’ve ever had,” said Michael Foust, chief executive officer of Digital Realty Trust, the world’s largest landlord of data center properties. “We’re really seeing good activity, and our funnel of prospects is as big as it’s ever been.”

Active Year in 2011

In 2011, Digital Realty leased 1.2 million square feet of space, representing $131 million in annualized rent. That total included 481,000 square feet of finished “turnkey” wholesale space and 273,000 square feet of build-to-suit projects. An outsized chunk of that activity came in the last three months of the year, when Digital Realty signed leases for 446,000 square feet of space.

In the wholesale data center model, a tenant leases a dedicated, fully-built data center space. The wholesale data center model offers greater control and security than shared colocation space, and better economics than building an entire new data center. The developer bears the cost of building out the raised-floor space, but the tenant pays higher rents.

Northern Virginia has historically been one of the strongest data center markets, with a heavy concentration of fast-growing Internet companies. Both Foust and DuPont Fabros’ CEO Hossein Fateh said they expect that northern Virginia will remain a vibrant market, even as several new market entrants, RagingWire and Sabey Data Centers, open facilities later this year.

NJ Market Tied to Wall Street

The New Jersey market has previously been the focus of concern about potential imbalances between supply and demand. This is due in part to the region’s focus on customers in the financial services and healthcare industries, who tend to be more deliberate in their decision-making process and are shopping carefully for data center space.

“New Jersey has been a good market,” said Foust. “Because it’s so closely tied to Wall Street, the sales cycles have extended a little bit. But the major firms we talk to on Wall Street say they are expecting significant additional expansion of their infrastructure, so I think we’ll start seeing some absorption in New Jersey.”

“We actually feel pretty good about leasing in New Jersey,” said Joshua Rabina, co-president of Sentinel Data Centers, who operates a wholesale data center in central New Jersey. “We are progressing with construction of our next phase and I’m optimistic that we will have much of it leased upon delivery later in the year. It’s not 2007, but we feel demand is very healthy.”

The exterior of 60 Hudson Street, one of the leading data center hubs in Manhattan.

That’s the kind of entrance that commands attention. DataGryd is developing four floors of 60 Hudson Street, one of Manhattan’s premier “carrier hotel” properties, as wholesale and build-to-suit data center space. Although the company is new, its executive team knows the building well. DataGryd’s leadership includes veterans of Telx and FiberNet Telecom, companies which have operated interconnection facilities at 60 Hudson.

New York Market in Transition

DataGryd arrives on the scene at a transitional moment for the New York data center market. Manhattan has a reputation as a mature market, with most of its quality data center space focused in a handful of connectivity hubs that were established in the late 1990s following the deregulation of the telecom industry. But 2012 will see two new players bring substantial new chunks of come online, with DataGryd offering 25 megawatts of space at 60 Hudson Street, and Sabey Corp. retrofitting up to 40 megawatts of space at the former Verizon building at 375 Pearl Street (now Intergate.Manhattan).

These new players arrive as another key data center hub, 111 8th Avenue, has become the “Google building.” Google bought the immense building, home to dozens of telecom and data center tenants, primarily for use as internal office space.

The DataGryd team has worked with the ownership of 60 Hudson to retrofit the landmark building to support additional power capacity. The ambitious project includes the installation of a cogeneration facility on the upper floors of 60 Hudson, as well as reworking the sub-basement area to house diesel backup generators. The cogen power and backup generators, along with the Con Edison utility supply, will feed into a microgrid that will offer flexible power options for new data center tenants. (See Upgrading A Landmark Data Center Hub).

Four Floors of Space Available

DataGryd is developing 240,000 square feet of space on floors 5, 6, 7 and 8 of 60 Hudson, which were previously occupied by the New York City Department of Corrections. Tenants can have space delivered as turn-key wholesale space or a custom build-to-suit data center.

“Ternants all have different needs,” said Peter Feldman, the CEO of DataGryd. “I can’t just build the space and say ‘you make your equipment fit.’ I can build to suit for the client, or they can provide a design.”

The company expects to have its first tenants online this summer, with additional expansion capabilities once the cogeneration system is fully installed, which is expected within the next 12 months.

Feldman has more than 20 years of experience in data center development, and was a co-founder of Telx, which operates one of the primary colocation and interconnection facilities within 60 Hudson.  The company’s executive director is Jon DeLuca, previously CEo of FiberNet Telecom, which ran operated the first-floor meet-me-room at 60 Hudson (and then was acquired by Zayo Group). DataGryd is working with Jones Lang LaSalle as the leasing agent for the property.

One of the World’s Most Connected Buildings

60 Hudson Street has dozens of tenants in the telecom or data center business, making it one of the world’s most connected  buildings. The ability to tap a huge ecosystem or providers and potential partners has always been a key element of the building’s appeal. DataGryd says it will facilitate interconnections between its customers and other tenants in the building, but won’t charge any cross-connect fees.

“I’ve been in this industry quite a while, and I understand these business models,” said Feldman. “We’re not getting involved in people’s network costs. We can engineer conduits, are only charging for the conduit, not the cross connect.”

Feldman says DataGryd will lease space based on square footage and then use a flat-rate power billing system, charging customers for what they use, rather than the capacity of the space.

In recent years many enterprise data centers in the New York region have shifted some or all of their operations to New Jersey or others locales that offer more room and cheaper operating costs. But many companies require access to customers and connectivity in the city.

DataGryd believes there is plenty of demand to support the new space coming online in New York, including its project and the space at Intergate.Manhattan.

“We get a lot of people calling because they’re transitioning out of older space and can’t get a generator in their building,” he said. “I think there’s going to be plenty of customers for us, and for (Sabey) as well.”

An aerial view of the site of the Somerset Technology Park, a new data center project from Russo Development in central New Jersey, including an illustration of a planned data center

Russo Development has gained approval to move ahead with Somerset Technology Park, a planned data center campus in Somerset County, New Jersey. The site near I-287 among a cluster of data center properties about 35 miles from midtown Manhattan is the company’s ninth data center development in New Jersey.  Russo expects to begin site development activities “in early 2012.”

The property is a greenfield site that Russo says can support more than 1.3 million square feet in multiple facilities, and features electrical power capacity of  100 megawatts from multiple 69kV feeds.  The site is also within a half mile of two large water plants providing capacity or chilled water cooling. Russo has designed the complex to meet the security needs of Russo’s clients in the financial services industry, with enhanced berms and landscaping, perimeter fencing, and security gates with guard houses.

“From our past work with very knowledgeable clients, we have learned the most proficient ways of addressing their needs,” said Doug Bartels, Vice President – Development. “We were able to design a project that discreetly fits into the Township’s development strategy while still encompassing our future tenant’s site and security needs.”

New Jersey is one of the most active data center markets in the country. The state’s data center has traditionally focused on colocation facilities and single-tenant data centers in northern counties adjacent to Manhattan and the Wall Street companies that drive demand. But the Garden State’s data center geography has grown to  include a growing market for wholesale data center space in central New Jersey, where companies like Digital Realty Trust (DLR) and DuPont Fabros Development (DFT) are building new capacity.

“In our current technology and data driven climate, efficiencies are continuously evolving and improving,” said Mike Pembroke, Senior Vice President – Leasing & Marketing. “A newly designed purpose built data center at Somerset Technology Park provides the opportunity to design a facility that will take advantage of the latest in energy efficient design while being located less than 35 miles from Midtown Manhattan.”

Russo Development’s projects include a huge new data center for NYSE Euronext in northern New Jersey. Russo has also done build-to-suit data centers for Credit Suisse, JP Morgan Chase, and SunGard Availability Services.

“Electronic trading participants require the best available technology to take advantage of every market opportunity, with minimal latency and access to global trading hubs,” said Dr. Jock Percy, CEO of Perseus Telecom. “With the increasing importance of interconnection and speed in today’s trading environment, having a data hub which provides low-latency connection that is quicker, even by microseconds, is mission-critical by giving traders a competitive edge.”

60 Hudson Street, previously owned by Western Union, has a lengthy history as a cornerstone in the development of America’s communications infrastructure. The facility was built between 1928-30 at a cost of nearly $45 million – which, adjusted for inflation, is the equivalent of more than $400 million today. It initially housed 70 million feet of wire and 30 miles of conduit.

“This is perhaps the world’s most fiber rich and interconnected building,” says Andrew Kusminsky, COO of Perseus. “From our new data center, we can get to 196 countries.”

Back in June, there was active discussion among industry analysts and real estate professionals about whether the supply of data center space in the New Jersey market had outstripped demand. One of the largest players in the Garden State says demand has rebounded and now exceeds the amount of available supply in the market.

In a conference call with securities analysts last week, Digital Realty executives said the company is tracking more than 42 megawatts of demand, compared to 24 megawatts of available supply. The company also said it had identified nearly 33 megawatts of “earlier stage opportunities” that could lead to future leasing in the region.

“We believe that the increase in demand over last quarter reflects the pent up demand from financial services as well as system integrators and managed services and cloud providers that support financials and other large corporates,” said Digital Realty CEO Michael Foust.

The concerns about oversupply were fueled by a Wall Street Journal story in June which asserted that New Jersey was facing a “glut” of data center space. Our analysis at the time suggested that although there was more inventory than usual of wholesale space in central New Jersey, several substantial leases could quickly change the prevailing sentiment.

In July, Sentinel Data Centers reported that it had leased 50,000 square feet of space in Somerset, while IO reported deploying 3.6 megawatts of capacity for a financial services customer in Edison (later identified as Allianz Global Investors).

In the wake of Digital Realty’s update, analysts will be paying close attention when DuPont Fabros Technology (DFT) reports its third quarter results this afternoon. DuPont Fabros has been seeking tenants for 16 megawatts of wholesale space in its NJ1 data center in Piscataway.

ABRY, an experienced investor in the data center market, said Xand is expected to benefit from growing demand. Data center requirements in the northeast have grown exponentially in the last five years, ABRY said, and are expected to continue at a rapid pace for several years. The new owner said it will dedicate “significant resources” to help Xand continue to grow and expand.

ABRY Partners has been an active investor in the colocation and manage hosting industries. ABRY currently owns a controlling stake in Toronto-area provider Q9 Networks and holds a significant equity stakes in Telx and  DataPipe. It previously bought and sold CyrusOne and Hosted Solutions.

“We believe Xand’s steady growth-to-date, along with its high quality facilities, services, and employees constitute a strong and scalable platform. We look forward to partnering with the team in growing Xand’s footprint and market presence,.” said Brian St. Jean of ABRY.

ABRY has hired several new executives to direct the next phase of Xand’s growth. David Struwas has been named Chief Executive Officer and Robert J. DeSantis has been appointed Chief Financial Officer. The pair senior executives with more than 50 years of experience in building communications and technology companies. Lee Weinstein, the prior president and owner of Xand Corporation, will remain as a significant investor and serve on the company’s Board of Directors.

“Businesses are challenged with handling the expense and complexity of in-house IT functions and infrastructure, and are looking to outsource these activities while reducing operating and capital costs,” Struwas said. “The breadth of knowledge and experience of the Company’s management team positions Xand for a growth strategy through both acquisitions and new builds, while maintaining industry best customer service facilities and superior technical support.”

“With ABRY’s financial support and industry experience and Xand’s current operations as a platform, we are well positioned to make additional prudent investments to grow the business,” said DeSantis. “As evidence of this, Xand has completed a recent large data center expansion bringing its total gross square footage to 90,000 (square feet) and is in the process of securing an additional 50,000 square feet of data center space.”

Founded in 1990, Xand provides data center infrastructure, collocation, private cloud and business continuity services. Its data center is headquartered in Westchester County, NY, 30 miles north of New York City.

Satellite imagery of Hurricane Irene as it makes its way past Florida and up the Eastern Seaboard.

As New York City begins evacuating residents from low-lying area ahead of Hurricane Irene, the region’s data center facilities are making preparations to continue operating throughout the storm.

The hurricane could pose a number of problems for data centers supporting critical services in the New York area, including high winds and heavy rain. The most problematic threat is a storm surge, in which a hurricane pushes a wall of water ahead it, inundating low-lying areas. Sections of New York City and the New Jersey coastline are vulnerable to storm surges, which could cause ground-level flooding.

The exact track of Irene will be key to whether storm surges materialize in lower Manhattan and low-lying areas of Weehawken and Secaucus in New Jersey, all of which are identified as being at risk in storm surge impact maps prepared by local emergency management agencies.

Availability Issues for NYC Zone Locator

An immediate problem is determining what zone a property resides in. The city web site has an application that allows residents to enter their address and learn what zone they are in and what level of risk they face from a possible storm surge. That app has had intermittent availability problems since Thursday afternoon, and was non-responsive Friday afternoon, shortly after Mayor Michael Bloomberg announced mandatory evacuations for residents in the highest risk area – Zone A – which is currently being evacuated.

Bloomberg said the city had added servers in an effort to keep the site online, but the news conference appears to have prompted a traffic spike. “Due to high web traffic, NYC.GOV websites are experiencing technical issues and may not load in your web browser,” the NYC Severe Weather site reported. “The City is currently working to fix the issue.” Access appeared to be improving by 3:45 pm. In the meantime, the city was also supplying a PDF with maps of the storm surge zones.

Most of New York’s major data center hubs are located outside Zone A. The exception is 75 Broad Street, which houses data centers for Peer 1 and Internap, among others.

Most Manhattan Facilities in Safe Zones

The carrier hotels at 60 Hudson Street, 256 Broadway and 32 Avenue of the Americas are all in Zone B, which would only see a storm surge threat from a “moderate” Category 2 hurricane. The New York Stock Exchange and 111 8th Avenue are both in Zone C, which would only flood in the event of a direct hit frpom a category 3 or 4 storm. While Irene is currently category 2, it is expected top weaken to Category 1 by the time it reaches the New York metropolitan area.

“We intend to be open for trading on Monday,” said Eric Ryan, spokesman for NYSE Technologies. ” We have contingency plans in place for such events with the goal of having the market up and running while ensuring the safety of our people.”

The company’s data center in Mahwah, New Jersey was built above flood plains, and engineered to survive high winds.

Several other major financial data centers are in areas of northern New Jersey that local officials say should prepare for hurricane damage. The storm surge maps from the NJ Office of Emergency Management appear to indicate that a Digital Realty Trust building in Weehawken is in an area that could be affected by a storm surge associated with a Category 1 or Category 2 hurricane.

Digital Realty, Equinix Prep for Storm

Dave Caron, Senior Vice President of Portfolio Management for Digital Realty, says the state maps are not accurate. Digital Realty did its own survey of the area’s elevation prior to acquiring the property and says its elevation places it above the area that would be affected by a storm surge. Caron said the company is prepared to handle water levels that could result from Irene or other major storms. Digital Realty has also upgraded the roof of the Weehawken facility to ensure that the building can withstand hurricane force winds.

Equinix has several data centers in Secaucus, and is also busy making preparations for the hurricane and any challenges it may bring.

“We’ve taken additional precautionary measures to guard against interruption of services at our IBX data centers in areas that may be affected,” said Sam Kapoor. “The generators have been double-checked, the fuel levels verified and we’ve put backup fuel vendors on standby in case of any extended power interruption. While all of our data centers are staffed 24×7, we have also made arrangements to ensure staff are available on site as necessary to maintain operations. We’ll be monitoring the situation at each of our sites closely to see if additional measures are required.”

Some of the first modules deployed at the i/o New Jersey data center, including units housing power, networking and IT equipment.

At 800,000 square feet, the i/o New Jersey building is one of the largest data center facilities in the world. It’s big enough that the company uses a Zamboni to clean the vast expanses of floor space.

But size isn’t the only area where this new facility is pushing boundaries. i/o New Jersey is the largest example yet of a new approach to IT infrastructure, in which factory-built modular data centers are deployed inside larger structures that provide protection from the elements, along with power and connectivity.

Much of the modular story has focused on the enclosures themselves, which started out as ISO-standard shipping containers but have since evolved into custom designs like the i/o Anywhere units.

The Economics of the Facility

But the facilities housing these units are part of the story as well, playing a key role in the economics of the new deployment model. The data center environment is managed within the modules, reducing the cooling infrastructure needed for the larger building, which in turn reduces the up-front capital investment to bring a facility online. An early example of this was Microsoft’s lightweight “tractor shed” design for its modular data center in Quincy, Washington, which features a lightweight exterior.

While Microsoft can customize its facility around its own needs, i/o New Jersey is among a small number of modular facilities optimized for multi-tenant operations, which requires a sturdier exterior and extensive security. Other early examples include CapGemini’s Merlin data center in the UK, the Pelio & Associates building in Silicon Valley, and a Tier 5 facility in Australia. But none of these projects approach the scale of i/o’s data center in Edison, New Jersey.

The huge building is adjacent to Exit 10 of the New Jersey Turnpike, and previously served as a printing plant and distribution hub for The New York Times. The operation was closed in 2008 when the Times reduced the size of its print product and consolidated its printing operations in Queens. i/o acquired the site, which is located next to a large power switching station, and began converting the facility into a modular data center.

Speed of Deployment

One of the promising features of the modular approach is the ability to deploy IT capacity quickly. The first customer installation at i/o New Jersey is already in place, providing 3.6 megawatts of critical power to a large global financial services company. The customer was fully installed within 90 days of i/o occupying the building, a  timetable enabled by simpler approach to the building superstructure, which requires less construction.

Highway access is important to allow delivery of the i/o Anywhere modules, which are built in the company’s factory in Phoenix and then loaded onto trucks for the cross-country journey to New Jersey. The 25-ton modules enter the building through a 20-by-20 foot entrance, and then are wheeled into position within the data center.

The modules are arranged in groupings, typically featuring four to five enclosures (including units housing power, networking and IT equipment). The 43-foot long modules are deployed alongside a raised floor. In a traditional data center, the raised floor serves as a cooling plenum, but at i/o New Jersey, the cooling system is housed in a four-foot high compartment in the lower section of each modular unit. The  four-foot high exterior raised floor provides customer access, aligning with the entrance to the module – and also providing a familiar visual environment for those accustomed to traditional raised-floor data centers.

i/o is building out the enormous Edison site in four phases.  The first of four meet-me-rooms is in place, with 48 four-inch conduits providing fiber access to providers including AboveNet, Level 3, Verizon and Optimum Lightpath, with AT&T being added shortly. The fiber and power cabling is distributed via an overhead “superhighway” of ladder-style trays.

A Modular “Megatrend”?

For i/o, the new facility represents a big bet that data centers will be built and deployed very differently in the future. “We believe we’re on the front edge of a megatrend,” said Anthony D’Ambrosi, Chief Sales & Marketing Officer for i/o. “We think of it as a refresh of the data center strategy.”

The Edison site represents i/o’s entry into New Jersey, a highly competitive market with plenty of existing providers offering retail colocation services or wholesale data center space. Area real estate professionals say its not clear whether modular offerings will impact demand for the wholesale or colo market, but see them as part of an expanding range of options for enterprise data center customers.

CEO George Slessman says the modular approach provides i/o with different economics than its competitors. “New Jersey is already successful for us,” Slessman recently told Data Center Knowledge. “My investment is incremental. I’ve already covered my fixed costs, and I only build if I have a customer.”

One thing’s for sure: i/o has plenty of capacity in the Edison facility, which could house as many as 650 of the i/o Anywhere modules. The company’s factory in Phoenix is expected to produce 120 modules this year, some of which will be deployed in Edison, with others going to customer sites or the second phase of the i/o Phoenix data center.

A close-up of one of the i/o power modules, with emergency power off switches on the outside of the enclosure.

Since then there has been a flurry of leasing announcements in the state:

• On July 7, Sentinel Data Centers announced that it has leased more than 50,000 square feet of wholesale data center space in its Somerset, NJ data center to three of the largest Fortune 500 firms. As a result, Sentinel said it will immediately begin construction on the second phase of construction at the data center.
• On July 21, i/o reported that “one of the largest global financial services companies” has gone live with a 3.6 megawatt data center installation at the new i/o New Jersey facility in Edison, N.J. The customer equipment was installed and brought into production in 90 days using the i/o Anywhere modular data center, the company said.
• This week Grubb & Ellis reported that Digital Realty Trust is now 100 percent leased at its 3 Corporate Place data center in Piscataway, having leased “a few thousand square feet” of remaining space. G&E reports that Digital Realty (DLR) has lined up tenants for about 20,000 square feet of turnkey data center space in its building in Franklin Township. The company has not yet leased an existing 11,000 square foot wholesale pod available at another Piscataway facility.

“It seems that the New Jersey wholesale data center market is improving,” writes Michael Mandel on the Data Center Practice blog. “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, it will be hard to make a proclamation that the market is heating up again.”

The DuPont Fabros Technology (DFT) data center in Piscataway represents the largest single chunk of space. with 18 megawatts of power capacity (of which about 4 megawatts is leased). DuPont Fabros typically announces new leasing activity when it reports its earnings, which are scheduled for August 2 after the close of the financial markets. If DFT reports leasing activity at NJ1, it would go a long way toward addressing the concerns about oversupply. If not, it will raise tough questions about why other wholesale and modular players are leasing space while DuPont Fabros is not.

For more background, see our analysis of the New Jersey data center market.

The data hall in the New York Internet data center in Bridgewater, N.J., featuring orange highlights to reflect the company logo.

The New York Internet Company has made its name as provider of colocation and managed hosting services to financial services from a data center in Manhattan’s financial district. The company has now broadened its horizons by opening a second data center in New Jersey. But even though it’s now operating in several states, it’s not changing its name, or the distinctive orange color scheme seen in its logo.

“I think we spend more on orange paint than any company in New Jersey,” joked Phillip Koblence, the VP of Operations at NYI. “All the steel in the building is painted orange.”

Reputation for Reliability

NYI has built a reputation for reliability, regularly placing at or near the top of a monthly survey of the most reliable hosting providers compiled by Netcraft, a UK research firm. New York Internet was the top performer in the Netcraft reliability survey four times in 2009, and is tied for the top spot this month.

The company began life in 1996 as a consulting firm offering basic hosting solutions, but has gradually built out a broader product line and two major data centers. New York Internet’s primary data center is at 100 William Street in the financial district in New York, where it provides colocation, managed hosting and dedicated servers for customers from Wall Street firms and media companies.

In 2009 NYI announced plans to open a new data center in Bridgewater, New Jersey. The 40,000 square foot facility extends the services offered at NYI’s Manhattan data center, the company said, providing expanded disaster recovery and business continuity services for customers in New York and New Jersey.

Boosting the Raised Floor

The Bridgewater facilty previously served as a backup data center for ADP, the payroll processing company. New York Internet than made improvements, elevating the 12-inch raised floor to 24 inches to support additional cooling capacity for high-density server installations. NYI uses the under-floor plenum only for cooling, running all power and fiber cabling overhead, above the racks.

The first phase of the data center occupies the upper floor of the two-story Bridgewater building, with the first floor available for conversion to data center space as demand requires. In the meantime, NYI has created a small conference center on the lower level that hosts events by the New Jersey Technology Council and other local and regional technology groups. These events help potential customers familiarize themselves with NYI, but also align with the company’s long-time support for open source software communities.

Focus on Service

In discussing his company’s strengths, Koblence points to what he calls the “NYI Difference,” an approach that combines the resources and capabilities of larger providers with the type of personalized support seen at boutique services. That’s a reflection of the priorities established by NYI’s early customers from Wall Street.

“Financial services customers’ extreme sensitivity to operational issues makes us raise our overall service level,” he said. “That’s a key differentiator that benefits the rest of our customers.”

With the New Jersey facility, NYI believes it can tap the pool of small- to medium-sized businesses requiring disaster recovery and business continuity services. The Bridgewater site is within 50 fiber miles of New York City, with connectivity from AboveNet, Lightpath, and Verizon Business.

The first phase of the Bridgewater site has power capacity of 5 megawatts, with expansion power of up to 20 megawatts planned. The facility is supported by a 2N+1 uninterruptible power supply (UPS) system and two Cummins generators.

Rows of cabinets at the New York Internet data center in Bridgewater, N.J., viewed from the cold aisle.