New Jersey is at the brink of a data center leasing rebound, fueled by pent-up demand in the financial services, pharmaceutical, healthcare and Internet sectors. So said real estate experts in a panel discussion at a recent Industrial and Office Real Estate Brokers Association (IOREBA) meeting, held at Sentinel Data Centers’ NJ1 facility (Somerset). As recently as June, The Wall Street Journal had noted a possible oversupply of N.J. data center capacity. That glut appears to be disappearing.

The panel’s conclusions were reinforced last week by earnings reports from two major players in the N.J data center market. According to a Data Center Knowledge report, during its earnings call, Digital Realty Trust (San Francisco) stated it had seen a “rebound in demand” in the Garden State. The company said it had identified up to 42 megawatts of demand and only 24 megawatts of supply here.

Speaking during the DuPont Fabros Technology Inc. (Washington) earnings call, CEO Hossein Fateh noted the N.J. market is coming along, calling it “good” and “solid.” He said the DuPont Fabros NJ1 facility is now 34 percent leased.

Though not so quick to say the market was back, panelists indicated the only question remaining is when companies that have been retooling and patching their in-house data centers will reach a tipping point and begin signing leases. Many firms now in N.Y. class-A office space will eventually “roll out of N.Y.” to N.J., said Mike Pembroke, senior VP of leasing and marketing for Russo Development (Carlstadt).

It’s taking a long time for companies to make decisions because they aren’t really comfortable with the economy, he added, and many are still putting Band-Aids on their existing facilities. However, the panelists expect this situation to change soon. “Basically, any data center five years old or more could be upgraded, or the company could move to a new center for a more updated, redundant and resilient solution,” Sean Brady of Cushman & Wakefield Inc. (East Rutherford), who moderated the discussion, said in a later interview.

N.J. is an important location for data centers, especially for the high-frequency traders and financial services brokers who need their trades to take place as close to Manhattan as possible, reducing “latency,” Brady pointed out. It’s also a prized location for Internet providers who need to deliver “search” rapidly to the 20 million people who live in the N.Y. metro area, he said.

Nevertheless, Michael Silla, director of strategic development at Concept CSI Inc. (New York), noted some factors tend to push other industries away from N.J.’s data center market. “If you don’t want or really need your data center located in N.J., you aren’t going to come here, because of the high cost of construction and utilities.” Pembroke added that, relative to other nearby areas like Long Island and Connecticut, N.J.’s power cost is low, though still high compared with that of, say, North Carolina.

Nevertheless, according to Brady, N.J. has the second largest concentration of data centers in the U.S. after California. Also, “there are more viable sites in N.J. than in other parts of the region.” He noted that eight of the 10 largest banks and financial institutions have data centers in the state. Data centers have unique siting requirements, and the availability of power, water, fiber and building stock gives N.J. some advantages over other states.

According to the panelists, the N.J. data center market comprises several segments. Standalone centers, for which Russo Development has the majority of the market, are usually dedicated to large enterprises and service providers. User-owned and tailored to their needs, they feature the highest security level available and involve the greatest upfront investment.

Wholesale colocation sites, like Sentinel Data Centers’s NJ1 facility, house several large or medium enterprises or service providers that have signed eight- to 12-year leases, said Josh Rabina, Sentinel’s co-president. In N.J., the major providers of these wholesale colo sites, as they are called, are Sentinel, Digital Realty Trust and DuPont Fabros. According to Pembroke, a large chunk of the new demand will be in this mid-range wholesale colo market. Companies that currently have capital constraints, and those that don’t want to spend a couple hundred million dollars on a dedicated data center facility, will migrate to this market.

Retail colocation represents a third market segment. These data centers provide many services for their users, the IT departments of enterprises and smaller entities. Providers active in the N.J. retail colo segment are Equinix Inc. (Redwood City, Calif.), Savvis Inc. (Town & Country, Mo.), Telx (New York) and Telehouse America Corp. (Staten Island).

IO Data Centers LLC (Phoenix, Ariz.), a supplier of modular data center technology, also participates in the N.J. market, running a center in Edison. “This is the newest type of data center operator to come into the state,” Brady noted.

The exact amount of vacant N.J. data center space is difficult to quantify, Brady said during the interview. Some centers are partially developed, and not all areas of a center may be available for a company to move into. Various time horizons exist for different operators. Also, each data center supplier creates space with different capabilities meeting different requirements. Some spaces are more versatile than others, and more versatile spaces fill up faster than more expensive, but more specialized, ones. Also, data center deals take a long time to deploy. “You have some space that’s available in six months for some sized deals and some that’s available in 18 months for other sized deals,” Brady explained.