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Data center legislation, development create positive outlook in Chicago

Data center legislation, development create positive outlook in Chicago,ph1
711 N. Edgewood Avenue in Wood Dale, Illinois, one of two west suburban properties that Element Critical plans to pump $40 million of capital into after acquiring them earlier this year.

Driven by demand from both enterprise and hyperscale cloud providers, the supply pipeline for wholesale data centers continues to edge up around the country. The Chicago market wasn’t quite as active as other top markets, but that could turn around soon.

According to CBRE’s North American Data Center Report for H1 2019, the total capacity of U.S. primary data center markets grew by 200 megawatts (MW) or 8 percent in the first half of 2019. Chasing this growing demand, over 411 MW of additional capacity, more than a third of it preleased, is currently under construction with near-term deliveries scheduled.

Primary wholesale data center markets in the U.S. absorbed a combined 171 MW net the first half of the year. That puts 2019 on a good track as this figure accounts for more than 56 percent of 2018’s full-year record.

Hyperscale cloud providers—those with deployments beginning of 5 MW and larger—are seeking immediately available space, in addition to strong network and cloud connectivity. At the other end of the spectrum, enterprise-based demand—deployments under 600 kilowatts—continued to diversify with a focus on low-latency and multi-cloud access.

Chicago currently has 258.1 MW of data center inventory, a 16.1 MW increase year-over year. The market is middle-of-the-road in terms of availability, with a 14.1 percent vacancy rate. Market vacancy exceeded 14 percent for the first time due to larger requirements going to other markets. Compare that the mammoth Northern Virginia market which has more than a gigawatt of inventory (over 222 MW of which came online in the past year), but vacancy is much tighter at 7.2 percent.

The Chicago market had 4.8 MW of data center net absorption in the first half of 2019, with another 8.2 MW under construction. As in previous half years, most demand came from organic growth as availabilities favored smaller deployments in H1 2019. Some of the firms delivering capacity to the market included Digital Realty, QTS and ServerFarm.

In January, Element Critical purchased two data centers in the west suburbs. The firm will invest $40 million into the two properties, located at 711 N. Edgewood Avenue and 341-361 Haynes Drive in Wood Dale, Illinois. The new capital will go toward expanding and redeveloping the combined 195,000-square-foot, 15 MW data center space.

“Element Critical is building a world-class data center platform and Chicago is the natural next step in our national expansion strategy,” Element Critical CEO, Ken Parent, said in a statement at the time of the transaction.

The state of Illinois has approved a new tax-incentive plan to drive data center development. The tax exemptions will be available for data center equipment over a 10-year span, incumbent on a minimum investment of $250 million in the facility and the creation 20 full-time jobs.

This legislation is a new trend and creates momentum moving forward in Chicago, as there has been a lag in past quarters due to higher total occupancy costs and operational expenditure. The combination of the new legislation and current development should lead to optimism for larger requirements in Chicago.