The Future of Manhattan Data Centers Part 2 - The Next 111 Eighth Avenue?

In my last blog post I mentioned that new data center users and expanding tenants will likely not have any options in 111 Eighth Avenue.  Google has indicated that it plans to expand in the building and has taken all available space off the market.  Meanwhile, quality data center space in Manhattan is in high demand.  The most recent sizable data center spaces that have come to the market in Manhattan leased at very high rents after bidding wars - the former Lehman Brothers space at 85 Tenth Avenue and Digital Realty Trust’s space at 111 Eighth Avenue. Most recently, XO has leased a raw floor at 32 Avenue of the Americas, where it will have to make a significant investment to convert the space for data center use.

With the uncertainty around 111 Eighth Avenue, recent strong activity in the market, and an overall stock of data center space in Manhattan that is outdated and inadequate for modern users, many developers, owners and operators are bringing new data center opportunities to the Manhattan market.  These speculators are planning something never before tried in NYC, they are building turn-key wholesale data center space and powered shell space on spec.

375 Pearl Street - Sabey

The most well known of these new opportunities is 375 Pearl Street, a 1 million square foot former Verizon switching building.  The property is currently under contract by a partnership of Sabey and NY developer Young Woo and is expected close within the next week.  Sabey is still formulating its strategy for the building, but the first phase is expect to include four floors (36,000 sf each) of turn-key data center space and 9 floors of shell data center space. Verizon will also continue to maintain a 3 floor condo interest in the building. 375 Pearl shares a lot in common with 111 Eighth Avenue, with its huge elevators, very high ceiling heights, abundance of shaft space, and heavy floor loads.

121 Varick Street - SoHo CoLo

The second new opportunity on the Manhattan data center scene is SoHo CoLo at 121 Varick Street (full disclosure, we exclusively represent the landlord to lease their space). SoHo Colo is initially offering six floors of 13,250 sf each in a building that is being completely repositioned for data center use.  121 Varick Street sits atop the Hudson Street/Ninth Avenue “fiber highway,” and as a former printing building, has the floor loads, freight capacity and ceiling heights to handle virtually any use.  The building already houses a small data center aptly named Data Center NYC.  The owners plan to take the building to the next level by bringing in 15 MW of power from Con Edison, installing an entire-building double-interlocked pre-action sprinkler system, and delivering power and ample chilled water to each floor.  Construction has begun for the building repositioning and the new power vaults should be fully operational in six months.  Space in the building will be offered as either powered shell or turn-key depending on tenant needs and demand.

60 Hudson Street - Name TBD

Finally, an as of yet unnamed entity is believed to be in talks to acquire a four-floor 240,000 sf block of available space at 60 Hudson Street.  60 Hudson Street is well established as one of the most prominent carrier hotels in the world, but has historically been occupied by low density telecommunications users taking advantage of the building’s interconnection opportunities.  This new project could bring new life to the building with high-density modern data center users.

It is unclear whether demand for new data center users is sufficient to meet all of this potential new supply.  However, it is our opinion that at greatest risk are NYC landlords with outdated data center space.  If these new entrants to the market can price their space fairly it would stand to reason that tenants of outdated data center space will jump at the chance to move in to the 21st century.

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