Digital Realty Will Build Data Center in Northern NJ

With its supply of data center space in northern New Jersey running low, Digital Realty Trust has acquired a property in Totowa, N.J. for $16.8 million, the company said today. The company said it plans to convert a former Hoffman-LaRoche warehouse into a data center offering nearly 16 megawatts of IT capacity, with further expansion possible down the road.

The 271,000 square foot redevelopment property at 701 Union Boulevard sits on 34 acres of land, and is approximately 20 miles west of the George Washington Bridge. Existing area substations can support the 15.75 megawatts of power for the initial phase of redevelopment. Digital Realty plans to construct a 50 MVA onsite substation to support future development at the site.

"With our current portfolio in the New York Metro market nearing capacity, this new site enables us to add inventory to meet future demand for highly reliable data center space in this key corporate enterprise market," said Michael Foust, Chief Executive Officer of Digital Realty. "Its location also adds geographic diversity for customers looking to deploy mission critical business applications outside of Manhattan."

Oversupply Fears Appear to be Fading

The project illustrates the complexity of the New Jersey market, where demand for data center space is segmented between single-tenant facilities, "wholesale" data center space and retail colocation providers. The demand outlook also varies between the northern counties adjacent to New York City and the growing cluster of wholesale providers setting up shop in central New Jersey.

Barely a year ago, industry watchers were debating whether New Jersey faced an oversupply of data center space, particularly among wholesale providers. But Digital Realty (DLR), which monitors supply-and-demand carefully, believes there's demand for more space - at least in Totowa.

"Based on our conservative underwriting, we expect to generate attractive risk adjusted returns on this investment," added Scott Peterson, Chief Acquisitions Officer of Digital Realty. "With the redevelopment opportunity of the existing building coupled with the additional land available for new development, we believe this investment has considerable upside potential."