New York is Red Hot!
The New York / New Jersey area has seen a flurry of datacenter activity over the last few months as providers jockey to acquire more space and serve demand in one of the country’s hottest markets. Capacity has been largely a tale of two cities (well States actually) with New York seeing relatively scarce retail capacity while Northern New Jersey has an abundance of wholesale space from the likes of Digital Realty Trust, DuPont Fabros and Sentinel. Since their target customers are financial services firms the NJ wholesale offerings all reside within a 30 to 70 km ring outside the blast radius from New York City but still within the limits of real-time data replication.
Clearly demand was impacted in NJ over the last few years as a result of the economy and the health of the financial services sector. In December of 2010 DRT identified 28 megawatts of available supply in NJ after one of the lowest years of absorption at 13 megawatts. (For comparison, 2008 saw 58 megawatts of capacity absorbed in NJ). Still the outlook for 2011 is strong and analysts predict as much as 40 megawatts to be acquired during the course of the year.
The one outlier here is Sabey Corporation who just announced their $120 million acquisition of 375 Pearl Street in lower Manhattan. This news is interesting in that it’s Sabey’s first development on the East Coast but more importantly because it’s unique to see a wholesale facility in New York proper.
One significant factor that is shaking up the market and potentially driving demand in both the wholesale and retail segments is Google’s acquisition of 111 8th Avenue. Last December Google acquired the massive carrier hotel in downtown Manhattan ostensibly for use as office space. Based on the significant strategic value of this property many in the datacenter industry question Google’s true intentions and have speculated that perhaps they would build their own interconnection and peering hub.
Two weeks ago Google formally announced that all remaining datacenter space at 111 8th was off the market. This news sent shock waves through the carrier neutral sector and most certainly will drive up the price of retail colocation not only within the building but also in similar carrier hotels like 60 Hudson and possibly 165 Halsey in New Jersey. The obvious short to mid-term beneficiaries of this news are Telx, Telehouse, CoreSite and newcomer zColo who operates space at 165 Halsey and 60 Hudson.
Just recently Telx leased an additional 53,000 square feet at 111 8th from Digital Realty Trust. Also in February Telehouse opened their newest facility at 85 10th Avenue. Thanks to its location two blocks away from 111 8th the Telehouse site should see an uptick in demand from displaced customers.
Speaking of displaced customers other carrier neutral operators inside 111 8th must be wondering what will transpire when their leases come due. This list includes Equinix (legacy Switch and Data), Internap and Qwest.
Silent Partner has learned that the same day Google made their announcement about removing available space in the building Qwest was also notified that their lease would not be renewed on a 2000 square foot suite. Adding insult to injury we’re told Google’s intent is to build a cafeteria in this space?!
Perhaps Qwest and others will look across the Hudson to the readily available wholesale space in New Jersey. After all it was similar conditions in the past that led Equinix, Switch and Data and others to deploy in the Garden State.
