Data Center Providers Say Demand is Still Strong

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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."