By John Yocca
The data center landscape in the U.S., particularly in New Jersey, is experiencing significant growth driven by the evolution of technologies such as artificial intelligence and cloud computing. Yet there is still a good deal of uncertainty around how to meet this growing need.
It was a key theme recently during a program hosted by NAIOP New Jersey, where panelists highlighted the expansion of the asset class and the Garden State’s strategic importance as a data center hub, but one that faces major questions about its power supply.
“The market is very strong and will continue to be so for the next five years,” said Sean Brady, a managing director with Cushman & Wakefield, noting that the U.S. is the largest data center market globally, with 3,000 facilities and 400 new ones being added annually. He also cited a 7 percent annual growth in third-party cloud services over colocation — where companies lease space and manage their own servers in a data center — driven by the rising demand for AI processing, which is expected to take over as the primary driver of growth.
New Jersey was once the largest data center market in the U.S., especially prior to 2012. It became a hub due to the abundance of corporate headquarters and the proximity to Wall Street.
Today, the state remains a critical player, hosting 88 colocation centers and ranking among the top 15 U.S. markets, Brady said during the Sept. 26 panel discussion, which was moderated by Sitex Group’s Blake Chroman. However, the state is facing challenges related to power availability, with wait times of two to three years for 20 to 40 megawatts of power.
Despite these hurdles, New Jersey still boasts 441 megawatts of operational power, with 82 megawatts under construction, including 26 megawatts from recent transactions and another 30 megawatts in the pipeline for corporate clients. AI users alone have accounted for 8 megawatts, according to Brady.
The New Jersey market is also seeing rapid price growth. In early 2024, rents ranged from $126 to $130 per kilowatt per month, but by midyear, rates had surged to $200 per kilowatt. This trend is expected to continue due to the limited availability of space, with larger deals driving down the vacancy rate to as low as 1.5 percent.
Vacancy across these markets stand at approximately 5.8 percent, although availability varies based on size requirements, Brady said.
AI’s impact on data centers
AI is playing a transformative role in the data center industry, as panelists discussed during the program at Embassy Suites by Hilton Berkeley Heights. According to Terence Deneney, a senior vice president at STO Building Group, the size, power and density requirements of AI-driven data centers have increased dramatically over the past few years.
In 2021, most data centers STO built were single-story buildings with power densities of 20 to 35 kilowatts per cabinet. Today, he said, power densities are reaching up to 125 kilowatts per cabinet, with some facilities requiring more than 400 megawatts of power.
As AI becomes more prevalent, large-scale data centers will need to be located closer to major population centers due to the increasing data processing and transmission demands, Deneney said.
“There’s a big expense and big change in design principles going on across this industry,” he said. “And the growth of the industry is driving some unique dynamics in terms of labor. To do a 500-megawatt data center, on average, you need 900 to 1,200 electricians. How do you find that type of labor?”
Power and infrastructure challenges in New Jersey
Power remains a critical challenge for data center development in New Jersey. Nicole Swan-Bennett, PSE&G’s director of business customer solutions, noted that most colocation centers in New Jersey fall within its footprint, with a total load of 369 megawatts.
Yet as demand continues to rise, the utility is rethinking how it allocates costs and infrastructure investments to balance the needs of data center developers with the needs of other customers.
“We are getting inundated with requests,” Swan-Bennet said. “Today we have just under 60 inquires at various stages and they have a total projected load of 4,500 megawatts. That gives you a sense of the volume and average size, which is between 10 and 400 megawatts. So, we’re categorizing them in different phases.”
Michael Pembroke, chief operating officer and principal at Russo Development, emphasized that not every site is suitable for data centers, especially in New Jersey. Power infrastructure must be in place or readily available, and the high costs associated with developing these sites can make financing difficult.
He highlighted the importance of turnkey solutions, where developers deliver fully fitted buildings with all mechanical and electrical infrastructure in place, allowing tenants to “plug and play.”
“Power is still very expensive in New Jersey,” he said. “These other users that could be in different markets might locate to different markets because they’re looking for the cheaper power.”
The importance of site selection
When selecting sites for data centers, particularly in New Jersey, power availability is the most critical factor, along with other considerations such as flood plain risks, topography, zoning, water availability, fiber access and permit requirements.
Christopher Hager, a managing principal with Langan, explained the four types of data center sites: enterprise, colocation, hyperscale and edge facilities. Hyperscale facilities, which are increasingly being built by major cloud providers, require large tracts of land, often outside major cities where latency is less critical. These sites are increasingly necessary for AI processing, which can tolerate some delays due to the sheer volume of data crunching involved.
Edge facilities, on the other hand, are smaller centers located close to end-users, such as those using smartphones or other connected devices, where latency cannot be tolerated. These facilities are essential in delivering high-speed, low-latency services to consumers.
While the state remains a key player, power availability and infrastructure will be critical factors in determining its future growth. AI is driving new demands for power and transforming the design and construction of data centers. As demand continues to grow, New Jersey’s data center market will need to adapt to ensure it remains competitive in the face of these challenges
John Yocca is a freelance writer.
A new wave of data center demand is coming to New Jersey, but supply may be tighter than ever
