Cervalis demonstrates greater NYC datacenter market is still strong

Michael Levy

In preparation for our latest update to our North American Multi-tenant Datacenter Supply report, T1R has been speaking with providers in the greater New York City market. We are working to get to the bottom of supply glut cries and pricing pressure woes. This week, T1R visited Cervalis' Totowa, New Jersey facility and left with the notion that MTDC providers serving the greater NYC market are going to be quite all right.

Key takeaways

• The financial sector is still demonstrating strong demand for MTDC services in the greater NYC market, which accounts for 65% of Cervalis' 200 customers.

• Sales cycles may be longer in the NYC market, but this is a consequence of a more educated pool of prospective MTDC tenants that are taking a bit more time to deliberate on their provider selection, not falling demand. Choosing where to outsource your mission-critical systems is not an easy decision; we can't expect enterprises to just flip a coin. Furthermore, every industry's capital constraints are tighter in an unpredictable economic climate; additional care is put into every capital decision. This does not mean, however, that New York enterprises have put their datacenter outsourcing ambitions on hiatus. In fact, Cervalis has seen the massive virtualization and consolidation movement among the financial community continue in full force, which often serves as the impetus for migrating into a third-party datacenter.

• Since 9/11, large investment institutions have taken a more serious approach to business continuity-disaster recovery (BCDR). Cervalis has devoted significant space in its facilities to BCDR areas, for which it has seen a healthy uptake. No longer are shared DR seats an acceptable approach. Household-name financial institutions are currently building out dedicated large BCDR offices within Cervalis' Totowa facility, one of which includes standby trading desks. Cervalis' ample distance from the city, devotion to BCDR and emphasis on redundancy serves as a differentiating factor that attracts the BCDR conscience and accounts for its ability to experience rapid uptake.

About Cervalis

Cervalis was founded in 2000 as a full-service IT outsourcing provider, where all services are handled by in-house staff. The company provides colocation, managed hosting, managed security, managed storage, private cloud, desktop virtualization, BCDR Space, and telecommunications and networking, including VoIP. Furthermore, Cervalis provides datacenter design and build services, SAN replication and builds private NOCs onsite by customer request. LPO Financial Services initially funded the company and Goldman Sachs acquired significant minority interest in September 2010 and has provided guidance ever since.
Cervalis began operations within its Wappingers Falls, Dutchess County, New York facility, which is about 70 miles outside of the city. In 2001, the company pursued SAS 70 Type II and Cyber Trust certifications. In early 2008, the company opened a second facility in Stamford, Fairfield County, Connecticut. The facility experienced rapid uptake and Cervalis soon planned a third facility in Totowa, Passaic County, New Jersey. All Cervalis datacenters operate with 2N UPS redundancy, N+1 generator redundancy and receive dual fed utility power. Additionally, all are carrier neutral, with 12-15 carriers present and Cervalis does not charge cross-connect fees.
Details on Cervalis' three facilities are shown in the following table:

Cervalis Datacenters

*Datacenter and BCDR are in two separate buildings

The Totowa datacenter

This site was specially chosen because Cervalis wanted to differentiate itself from big-name providers west of Manhattan that are located in counties bordering the Hudson River by locating further inland, away from both the river and city. The facility has been built out in a modular fashion, allowing room for additional UPS systems and generators as the datacenter is occupied. The facility has room for 24 750kVA UPS systems and 10 2MW generators. Six UPS systems and two generators are currently in place and operational. Cervalis operates at a very high power density in response to the financial and pharmaceutical sectors' preference for highly consolidated private cloud services. The facility runs with an average rack density of 200 watts per square foot. The UPS rooms take advantage of the facility's 40-foot ceilings, which allow heat to escape the systems, enabling such a power-dense configuration. Public Service Electric and Gas Company (PSE&G), the area's energy provider, has built a substation dedicated to the facility across the street at Cervalis' request. Electrical systems are monitored by Schneider Electric's full BMS system. The facility is also supported by two 17,500-gallon cooling tanks and a make-up thermal storage tank that contains 13,000 gallons of chilled water in case of a chiller system outage. T1R was impressed that an individual biometric security scanner secured every cage – something we have not seen even in datacenters that cater to federal clients.

Demand

In addition to serving enterprise clients based in the city, Cervalis has benefited from local demand touching each of its datacenters on the periphery of the greater New York area. The Stamford location has benefited from the large community of hedge funds located in the areas. Totowa, on the other hand, has won many of the big pharmaceutical companies with headquarters in central New Jersey. Cervalis also supports healthcare, legal, media, entertainment and ASP clients. Two-thirds of its customers represent the financial community, which include large global banks, brokerage firms, financial trading companies and hedge funds. Of Cervalis' clients, 90% are based in the greater NYC area and the remaining 10% are based out of Massachusetts, Rhode Island and the West Coast. The company primarily markets its services to enterprises between Philadelphia and Boston.
Cervalis has seen its contracts get progressively longer, with a standard contract lasting about five years. Additionally, the company has seen customer footprints getting larger. Some of the largest financial institutions have commissioned private suites of over 10,000 square feet in the Totowa facility.

T1R take

Between our datacenter tours of Webair Internet Development last week and Cervalis this week, we are led to believe that there is ample demand for datacenter services in the greater NYC area. In our preliminary analysis of the NYC market for 2H 2011, we have yet to see a supply glut. Plenty of demand is coming not only from financial players located in the city that want to separate their IT systems from their traditional headquarters in the event of a disaster, but also from business located in peripheral areas of the market, which may even warrant an expansion of what T1R considers to be within bounds of the greater NYC market. Western New Jersey and many parts of Long Island and Connecticut are underserved and we believe MTDC providers will begin to build further away from Manhattan.
Cervalis has created a specific niche for itself that T1R believes will enable the company to grow further within the NYC market and perhaps expand into another primary MTDC market. The company places a serious emphasis on disaster recovery, choosing datacenter locations away from city centers and including uniform premium redundancy across all its facilities. As of now, Cervalis has indicated it is primarily looking for expansion opportunities within the NYC market, but has its eye on some other primary and secondary markets. Considering the rapid uptake of space in Totowa, which has exceeded the company's expectations, we expect a new facility to be disclosed soon.

Back to News