Cushman & Wakefield's Sean Brady: New Jersey Data Center Development Offers Good Upside
NEW YORK, N.Y., April 9, 2013 - On balance, New Jersey's data center market has a lot of upside in a commercial real estate market that continues to rebound from the recent downturn. That was the assessment provided by panelists addressing the topic, "New Jersey Data Center Investment & Development Outlook" at CRE's Second Annual Greater New York Data Center Summit & Expo. The event was attended by over 400 professionals at the New York Bar Association in New York.
"The overview of our panel was that the New Jersey market is strong," said moderator Sean Brady, senior director of Cushman & Wakefield, Inc. in East Rutherford, N.J., and co-founder of the firm's Global Data Center Advisory Group. "In general, we felt that New Jersey's development opportunities offer good upside. New Jersey has the lowest cost of power in the New York metropolitan area and also has easy access to fiber, the stock exchanges, the best labor force and mass transit system."
As far as the investment market, however, not a lot of data center assets have traded over the last two years-but there are two pending sales already this year. "Still, investing in long-term net-lease data centers is very attractive," Brady said.
Among the other conclusions on the New Jersey data center market offered by the panel, which included Colton Brown, regional director of DuPont Fabros; Shelagh Montgomery, executive vice president of Quality Technology; Michael Boccardi, president of Cervalis; Dennis Cronin, COO of Steel ORCA; David Spiewak, CEO of DJS Group; and Stephen Verp, director of real estate for Digital Realty Trust:
• Panelists Verp, Boccardi, Cronin and Montgomery are each either looking to expand or have just announced a new facility in New Jersey, even though it is estimated that there is roughly 300,000 square feet of raised floor currently built and ready for occupancy. All six panelists are very bullish on the wholesale, collocation, managed service and cloud market and still see a lot of upside in the future. The group agreed generally that demand is good, and there is approximately 38 - 45 MW of deals within the New Jersey market today. The majority of the activity for these transactions is in the northern half of the state, with deals ranging from four racks to 250,000 square feet. "As long as the New York metro economic market continues to grow, our panel saw a steady demand for data center services," said Brady.
• All or most of the third-party data center providers are working to find ways to increase revenue. Most are "trying to do a little bit more to go after deals-to be more things to more people within the market," he said.
"I feel that the collocation market in New Jersey was very strong in 2012 and anticipate that to continue in 2013 and 2014," said Brady. "We have definitely seen the average size of a collation transaction go down from an average of 275 per kW to 210 per kW, and I feel that was caused by Hurricane Sandy. The wholesale market was slow last year, and I think that had to do with a combination of the election and the slow recovering economy.
"One reason wholesale transactions were slower than collocation is that they are typically far larger in size and bigger financial commitments by those companies," he said. "Moving two to 20 racks is easier and less expensive to move to collocation than 1,000 to 3,000 racks to a wholesale data center, by order of magnitude. CEOs did not want to spend the large amount of capital for the wholesale transactions, but the collocation market continued to be strong because deployments are smaller.
"Also in 2012, we saw increased price pressure because of increased competition, and we expect that to be the case in 2013," Brady said. "The pressure will come in the form of free rent, work allowance and some possible free services, but I believe the base rents are as low as they will go. Indeed, price pressure will probably continue into 2014 because of the current options and the six new, large developments being brought to market."
Those six new data center projects are DRT's redevelopment of the 271,000-square-foot former Hoffman La Roche facility at 701 Union Boulevard in Totowa; Cronin's Steel ORCA just acquired the former Pfizer facility at 865 Ridge Road in South Brunswick, where they plan to deliver 350,000 square feet of raised floor; Coresite has acquired the 280,000-square-foot industrial conversion at 3 Emerson Place in Secaucus; Equinix just completed the specially built 380,000-square-foot data center building at 800 Secaucus Road in Secaucus; Telx has completed its three-story 215,000-square-foot state-of-the-art building at 2 Peekay Road, Clifton; and Internap recently leased a newly constructed 101,000-square-foot industrial building at 1 North Enterprise Drive in Secaucus, which is out of the 500-year flood plain. Altogether, that represents approximately 1,597,000 square feet of new space on the market in 2013-2014.
"And again, our panel was positive about the data center opportunities that exist in New Jersey," Brady concluded. Tenants that consider this market have their offices in Connecticut, Westchester, New York City, and New Jersey. "New Jersey has emerged as one of the nation's premier data center markets, and we expect that it will continue to grow because of its proximity to New York City, where there is over 330,000,000 square feet of class A and B tenants who will need data center space."