Even before the supercharged ecommerce boom, initiated this same time one year ago during the early stages of the pandemic, the data center business was one of the fastest growing sectors in the commercial real estate world.
The pipeline continues to expand as merchants, distributors, and businesses expand their online presence to meet the needs of a largely work-from-home corporate workforce.
The Chicago region has been one of the top markets for data centers over the last few years, particularly last year where the Chicago metro ebbed and flowed from the fourth busiest leasing market to the sixth, then even dubbed second best in the world based on metrics such as development pipeline, fiber connectivity, cloud availability, land price, vacancy and market size.
However, a pair of newer reports give us a better idea of where the Chicago area stands today by looking at overall 2020 figures.
Commercial brokerage CBRE has released its North American Data Center Report for 2020, offering a comprehensive look at all major metro markets throughout the continent, as well as some insights for 2021.
Chicago had 13.1 megawatts (MW) of net absorption in 2020, making it the eight strongest market in all of North America last year.
Overall data center absorption was down in the Chicago area compared to 2019, likely due to IT freezes and cuts at the beginning of the pandemic, the report suggests. However, when looking back at the last several years, inventory growth of the Chicago data center market has increased over 121% since 2015.
Specifically for the Chicago market, the report indicates that hyperscale activity and users are helping to boost demand and reduce vacancy. A couple of notable deals mentioned include the Stream Data Centers lease in Elk Grove Village to a single hyperscale tenant, as well as STACK Infrastructure’s 12 MW Phase 1 lease, also to a single hyperscaler.
Some big anticipated deliveries include a 6 MW phase 1 build by RagingWire in Itasca, a 6 MW delivery by CoreSite in downtown Chicago, and a 3.2 MW facility from Digital Crossroads in nearby Hammond, Indiana.
A separate report from Lee & Associates also breaks down some of the key takeaways from the national data center sector. The brokerage describes data centers as “the best performing CRE sector to date,” adding that the market is “handsomely rewarding investors for their confidence in the sector.”
According to Lee & Associates, retail ecommerce expanded by nearly 73% between 2015 and 2019 while digital grocery sales and delivery increased by 117% in the same period.
Connectivity of numerous devices, such as thermostats, smart speakers, and other home automation equipment, as well as the increase in virtual conferencing is expected to bolster demand for bandwidth in the coming years. Video conferencing has exploded, with Zoom reporting growth from 10 million daily meetings in December 2019 up to 300 million daily meetings by April 2020.
The Lee & Associates report also hits on research by CoreNet, which conducted a survey that suggests 94% of end users believe that the work from home model will continue well beyond the COVID pandemic. Another report highlighted also estimates that upwards of 30% of the workforce will continue to work from home for at least a few days a week in 2021.