Data Center Demand Remains Healthy

What’s the current outlook for data center demand? Earlier this month DuPont Fabros Technology (DFT) said leasing at its data centers has slowed slightly due to a longer sales cycle for enterprise companies.

Is this a growing trend, or specific to the experience of DuPont Fabros? A review of second-quarter conference calls for the other publicly-held data center specialists finds demand for data center space remains healthy, and outpaces supply in the most active markets of Silicon Valley and New York/New Jersey.

“We continue to see a very attractive pricing and strong demand for our market, particularly for our Turn-Key Datacenter product,” said Michael Foust, CEO of Digital Realty Trust (DLR). “We continue to see a significant lack of supply necessary to meet this demand, and DLR is one of the few data center providers actively building speculative Turn-Key space across our major markets.”

Foust said that despite the challenging economy, Fortune 1000 companies, Internet companies and systems integrators continue to make “significant investments” in IT infrastructure. “Our teams are experiencing strong demand in the major markets in the U.S. and Europe especially for our Turn-key product,” Foust said in the company’s Aug. 6 conference call (see full transcript).

Wall Street Grids: The Cloud or the Data Center?

Is in-house financial grid computing “dead” and headed for the cloud? Or is it alive and well and rapidly filling data center space from existing providers?

I read a lot of blogs and listen to a lot of conference calls from public companies in the sector. Last week’s intake provided a stark difference between the view from the cloud and the reporting of events on the ground from data center developers.

In a post last Thursday, Reuven Cohen of Enomaly predicted that Grid is Dead, citing discussions with prospects in New York:

A particularly interesting discussion earlier today was with the director of grid infrastructure for a major wall street bank. The conversation ranged from network optimization, the pros and cons of map/reduce to the importance of utilization. During our discussion I couldn’t help but think that the traditional single tenant grid infrastructure was dead and that the future lied in the use of flexible and adaptive compute clouds.

Reuven offers a technical discussion of utilization rates and how clouds and virtualized grids might improve the performance of financial applications.

I don’t doubt that Wall Street IT executives are having interesting discussions about the potential of cloud computing. But in the meantime, they’re leasing large amounts of single-tenant turn-key data center space from Digital Realty Trust (DLR) to run these apps in their own space, as was clearly indicated in the company’s conference call with analysts last week.

DuPont Fabros Reports Slower Leasing

DuPont Fabros Technology (DFT) said today that leasing at its data centers has slowed slightly due to a longer sales cycle for enterprise companies, who are the primary customers for the company’s newly-opened Chicago data center. DuPont Fabros executives said they remain highly confident about demand for the company’s facilities, and expect to have no trouble meeting their revenue projections.

“We feel demand outpaces supply and the market is healthy,” said Hossein Fateh, the president and CEO of DuPont Fabros. “In the current economic climate, the decision to sign leases is now taking longer, particularly in the enterprise market. We originally hoped to be 100 percent leased in ACC4 (the company’s new data center in Ashburn, Virginia) and we are currently at 86 percent. We also hoped to be further ahead on leasing our Chicago facility.”

Fateh discussed the leasing in a conference call with analysts this morning. The company also said it had raised the low end of its 2008 guidance on funds from operations (FFO) from $1.20 to $1.24, while keeping the top end estimate at $1.30 per share.

The report of slower leasing differs from the experience at Digital Realty Trust (DLR), the other large REIT focused on the data center sector, which reported strong demand and higher leasing rates in its second quarter earnings and raised its 2008 FFO projection. Colocation providers Equinix (EQIX) and Switch and Data (SDXC) also reported strong demand for space and raised their revenue guidance.

Fortress Reports $37M in 2Q Engagements

In the latest sign of activity in data center construction and expansion, Fortress International Group (FIGI) said Thursday that it booked $37 million in new business in the second quarter, bringing new engagements for 2008 to $91 million, a 46 percent increase from $62 million during the first six months of 2007.

The new business for Fortress included $32 million in construction management, $3 million in facility management and $2 million in technology consulting. Fortress International is a holding company for a portfolio of companies that design and build mission-critical facilities, including notably Total Site Solutions (TSS). Fortress has now booked $80 million in new construction work this year, including two new projects announced Monday.

Don’t Look to VCs for Data Center Supply

The big fear about the data center market has always been that a flood of new facilities would lead to a repeat of the oversupply that marked the data center glut of 2002-03. This burst of speculative construction has never materialized, as the data center industry is a capital-intensive business with a high barrier to entry, which has become even higher as the credit crunch has made it harder to fund new construction.

Here’s one more data point on the supply and demand situation that emerged from last week’s GigaOm Structure 08 conference: don’t expect the venture capital industry to directly fund new data centers anytime soon. An afternoon panel of venture capitalists focused on the lack on investment in Internet infrastructure. The VCs argued that they were funding infrastructure, just not servers and data centers - which Vivek Mehra, General Partner of August Capital, noted are “very, very expensive.”

The Economist on the Data Center Boom

The Economist has a three-story package looking at the resurgence of the data center industry, including a main story on cloud computing and data center demand, and sidebars on the energy consumption of mission-critical facilities and the recent surge in investment in undersea fiber-optic cables. It’s a well researched overview of the key issues and trends we’ve been tracking here at Data Center Knowledge.

San Antonio Paces Major Data Center Markets

In The Boyd Companies’ latest study of the best locations for enterprise data centers, the cities with the best cost profiles are primarily second-tier markets. Although these cities may offer opportunities for stand-alone corporate projects, many wouldn’t fit the criteria for multi-tenant data centers or peering facilities, which are typically located near business centers or major connectivity hubs.

Fortunately, the Boyd study also looked at the cost profiles of most of the current hot spots for data center development (with northern Virginia being the notable exception). Of those, only San Antonio, Texas was among the leaders in affordability. But the comparisons provide insight into cost differentials between today’s leading markets.

The most expensive places to operate a data center are New York and San Francisco, two of the major Internet markets. The Boyd Company estimates an annual expense of $28 million to operate a data center in New York, with San Francisco coming in at $23.5 million.

They were followed by northern New Jersey, which at $19 million a year is more expensive than most other markets, but nearly $9 million a year cheaper than New York. That cost differential is one of several factors prompting Wall Street institutions to build new data centers in New Jersey, along with the availability of land and regulators’ emphasis on geographic diversity for backup facilities.

Disaster recovery considerations are a big factor for Boyd, whose clients include financial institutions and Fortune 500 companies.

Bank of NY Postpones $70M Data Center

The Bank of New York Mellon Corp. will not expand its Pittsburgh area data center, but will instead keep open an existing facility in central New Jersey. The bank had initially planned to close the New Jersey data center and invest $70 million in expanding a former Mellon facility in Northpointe, Pennsylvania. At the time the project was announced in June of 2007, the Northpointe data center was only a year old, and was already being upgraded. The bank cited “cost escalation related to construction and specialized data center equipment” as one of the reasons for the change in plans.

Bank of New York Mellon said that although it would not add additional space in Pittsburgh, it will invest in upgrades of power and security in both data centers. The bank also said it was not reducing its hiring plans for the Pittsburgh area, where it planned to add 200 jobs at the expanded data center. It will instead add information technology jobs at offices in downtown Pittsburgh.