As economically devastating as the COVID-19 pandemic has been, imagine if it had occurred 10, 15 or 20 years ago, when our interconnectivity wasn’t as robust as it is now. The evolving data center sector is what allows for this free flow of information, and Chicago is proving to be a top global market in this space.
A recent report from Cushman & Wakefield’s data center advisory group looked at 48 data center markets—from Amsterdam to Zurich and everything in between—and rated each on a series of metrics. The researchers placed Chicago in the top ten for numerous categories—including development pipeline, fiber connectivity, cloud availability, land price, vacancy and market size—ultimately bestowing the Second City with the number two spot in the world.
Across the real estate spectrum, active development pipelines indicate local demand and thus market strength. This is true of data centers as well, also signifying that financing, power and fiber were all obtainable and that local authorities are welcoming of these projects.
It is somewhat rare that data center developments are launched speculatively as an anchor tenant has usually already been lined up, at least for an initial phase. These marquee users buying into a new development not only light off a flare that the market is healthy, but they also help to attract other users and foster the creation of data hubs.
Information flows faster and more abundantly every day, which is why access to fiber is the backbone of the data center landscape. This proved especially important as employees all over the world left their offices in the wake of the pandemic and began working from home. One only need consider the outsized role that videoconferencing has played in the past year to understand why the fastest and most reliable data carriers are changing the way we work.
The more the better when it comes to networks running to a data center. Businesses rely on cloud storage not just because they are faster but because they are robust and, in theory, never fail. Multiple networks provide the redundancy to make sure that this remains the case.
Though it may only be small line-item expense during the overall construction of a large data center, land costs are still important. If nothing else, it is generally one of the first costs that a developer will incur. Chicago has long boasted of its cheaper land costs in comparison to the coasts, and it’s doubly so when considering ultra-dense European and Asian locales.
What makes for a good site? Access to a reliable power grid, strong fiber connectivity, local government incentives, easily available water for cooling, limited natural disasters and a helpful local permitting process. Chicago checks all these boxes.
The more densely populated a market is, the greater its need for data centers. But this also typically means that the cost for the dirt is higher than in other locations. Many developers are targeting secondary U.S. markets like Columbus, Nashville and Denver, though larger data center markets, including Chicago, also placed highly. This suggests that larger campus builds are still a cost-effective strategy in Chicago.
The Cushman & Wakefield report also highlighted vacancy, market size and cloud availability as some of the Chicago market’s strengths. When it comes to data center vacancy, some operators will artificially increase availability in the prospect of landing insatiable demand. Nevertheless, as in other asset classes, low data center vacancy is a sign of a robust market.
In 2019, Illinois instituted a data center tax incentive package to help Chicago and the rest of the state remain competitive in this arena. Designed for hyperscale users that plan to invest $250 million or more, the program is designed to entice major players—and ensure that Chicago remains a globally competitive data center market for years to come.