Nationally, large cloud users are driving up demand and absorption of data centers. New supply within Chicago, the third-largest data center market in the country, has positioned the city to capture large, new users.
Last year’s data center absorption around the country hit a new record, according to a recent report by CBRE, with the $7 billion of investment in the asset class during the first half of 2018 indicating that we are on pace for another banner year. Nearly half of this new investment was in asset-level transactions. Demand for cloud storage led to more than 177 MW of net absorption in the first half of 2018.
The Chicago market’s inventory of data storage currently sits at 245 MW, an increase in inventory of 56.6 MW from this time last year. Among primary markets, only Northern Virginia—the world’s largest data center market—had a larger year-over-year change with a whopping 198 MW to reach a total inventory of 805.8 MW.
But this delivery of new supply in Chicago isn’t matching demand. During the first half of 2018, the metro area’s data center vacancy rate increased by nearly 9 percentage points from a year ago. Several large, contiguous blocks of commissioned capacity were immediately available—something that hasn’t happened in the market for multiple quarters.
“While the increased vacancy rate might lead some observers to assume the Chicago market is in decline, however, history has shown that large increases in quality supply are ultimately very good for the overall growth of a market,” said Todd Bateman, practice leader of CBRE’s data center solutions team in Chicago. “All indications are that the same will hold true for the Chicago market.”
In fact, though new supply has yet to be absorbed, interest is not lacking. Nevada-based wholesale colocation provider RagingWire bought a 19-acre site in Itasca—their first foray into the Chicago market—with plans to build a 200,000-square-foot data center and possible future expansion of up to 550,000 square feet.
Other providers, such as ServerFarm and T5, planned expansions in Chicago. CoreSite, a tech-focused REIT based out of Denver, has spent years converting the former Western Union Telegraph building at 427 S. LaSalle Street into a modern, 16-MW data center they’ve dubbed CH1. As that facility reaches capacity, they acquired another site one mile away, at the corner of Clinton Street and 14th Place.
There they will transform an empty, two-acre parcel into CH2—a four-story, 175,000-square-foot facility with 18 MW of capacity. CoreSite will invest up to $210 million in the project, with the first of three phases of construction slated to begin at the end of this year or early next.
“We expect CH2 to enhance our ability to compete effectively in the Chicago market for customer requirements seeking a high performance, cloud-enabled and scalable, higher density colocation solution,” said Paul Szurek, chief executive officer at CoreSite, at the time of the acquisition.
As of Q2 2018, more than 140 MW of new capacity is planned in Chicago. Due to its geography and demographics, Chicago is well-positioned to capture future demand from both enterprise and hyperscale users.