Will Internet Companies Open Data Centers in New Jersey?

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The fortunes of the New Jersey data center market have historically been guided by demand from Wall Street firms and enterprise companies. This is partly due to the New York region's concentration of financial services and pharmaceutical companies, and partly due to the relatively high cost of operating data centers. New Jersey was cheaper than Manhattan, and had more space available. If you were an Internet company with thousands of servers, you probably looked for space in northern Virginia or Silicon Valley instead of the Garden State.

But that may be changing, according to one data center executive. Hossein Fateh, the President and CEO of DuPont Fabros Technology, says that a recent decline in the price of electricity is prompting some Internet companies to take a look at his company's facility in Piscataway, N.J.

"Power pricing in New Jersey has historically been about 12 cents per kilowatt (hour) and is now about 8 cents per kilowatt," said Fateh. "This has resulted in some Internet-focused tenants considering New Jersey for their data center requirement. If power pricing continues at this level, it will likely increase the interest from a broader range of tenants for New Jersey."

More Competitive With Other Top Markets

That places New Jersey's cost of power slightly below the cheapest markets in Silicon Valley, and only slightly higher than pricing in northern Virginia. Given the huge population of consumers and businesses that can be served from New Jersey - including both the New York and Philadelphia markets - that shift in power costs could alter some of the deal math in the site selection process.

UPDATE: Kent Hill, the Senior Manager for Economic Development at Dominion Virginia Power, writes to note that the current “all in” electric price for Dominion customers in Northern Virginia is around 5.4 cents a kW hour. "Doing the math, that would make the NJ pricing roughly 48% higher than Northern Virginia (5.4 cents vs. 8 cents)," Hill says.

Fateh, whose company has leased data center space to Microsoft, Facebook, Google and Rackspace, sees the power pricing trend as a positive development for DuPont Fabros' NJ1 facility, which has about 12 megawatts of space available, the largest single chunk of data center space in the region.

"We're confident about the New Jersey market," said Fateh. "I'm optimistic about these Internet-type tenants that are looking out there."

One area where NJ's competitiveness is less clear is economic incentives. Many large data center tenants are seeking breaks on state taxes on the purchase of servers and other IT equipment, and sometime electricity as well. About a dozen states have adopted these type of incentives. Under Gov. Chris Christie, New Jersey has been more welcoming with its incentives for business, but it remains to be seen whether the state will be able to match the tax breaks offered by other states seeking server farm projects.