Digital Realty Sees Demand Rebounding in NJ

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Back in June, there was active discussion among industry analysts and real estate professionals about whether the supply of data center space in the New Jersey market had outstripped demand. One of the largest players in the Garden State says demand has rebounded and now exceeds the amount of available supply in the market.

In a conference call with securities analysts last week, Digital Realty executives said the company is tracking more than 42 megawatts of demand, compared to 24 megawatts of available supply. The company also said it had identified nearly 33 megawatts of "earlier stage opportunities" that could lead to future leasing in the region.

"We believe that the increase in demand over last quarter reflects the pent up demand from financial services as well as system integrators and managed services and cloud providers that support financials and other large corporates," said Digital Realty CEO Michael Foust.

The concerns about oversupply were fueled by a Wall Street Journal story in June which asserted that New Jersey was facing a “glut” of data center space. Our analysis at the time suggested that although there was more inventory than usual of wholesale space in central New Jersey, several substantial leases could quickly change the prevailing sentiment.

In July, Sentinel Data Centers reported that it had leased 50,000 square feet of space in Somerset, while IO reported deploying 3.6 megawatts of capacity for a financial services customer in Edison (later identified as Allianz Global Investors).

In the wake of Digital Realty's update, analysts will be paying close attention when DuPont Fabros Technology (DFT) reports its third quarter results this afternoon. DuPont Fabros has been seeking tenants for 16 megawatts of wholesale space in its NJ1 data center in Piscataway.