Industrial N Illinois

Data center vacancy down in Chicago as users turn to new space

Data center vacancy down in Chicago as users turn to new space,ph1

The Chicago data center market vacancy stood at 10.7 percent for the second half of 2018, down from 11.2 percent in the first half of the year. However, newly delivered product and decelerating leasing velocity led to vacancy increasing 180 basis points year-over-year.

The nation’s seven primary U.S. data center markets, including Chicago, combined for 303 MW of net absorption last year, up more than 16 percent from 2017’s then-record total, according to CBRE’s latest U.S. Data Center Trends Report. Chicago itself experienced 10.7 MW of net absorption in H2 2018.

“Chicago remains one of the most important geographic locations for data center providers due to its strategic location, access to plentiful power and connectivity and proximity to population centers,” said Todd Bateman, North American agency practice leader for CBRE’s data center solutions.

The area remains the fourth-largest data center market in the nation with 243 MW of inventory—which at the end of 2018 was a 16.6 MW increase over the previous year. Since 2015, surging demand has seen the market increase its inventory 70 percent. The most notable delivery of 2018 was Digital Realty’s addition of 10 MW in the extremely tight market of Elk Grove Village, Illinois.

However, this new product may be what the market needs to increase leasing activity, as supply constraints have hindered big users expanding in the past. With a total of 73.2 MW delivered in the past two years and the market currently offering 26 MW of available space, users now have more options.

“This new product will help meet the needs of large users that have been unable to expand in the market,” said Bateman. “However, leasing velocity has been affected by meaningful competition from other markets to lure these users. Chicago will become more competitive in time, but currently a delta exists.”

At the moment, Chicago data center vacancy is above historical averages. Nationwide, demand from hyperscale speed-to-market requirements has dampened as enterprises focus on smaller deployments and high-density computing.

Chicago may be positioned to capture mid-sized enterprise and speed-to-market hyperscale demand due to the area’s large blocks of availability, but also because Digital Realty, QTS and T5 Data Centers have all announced growth plans for the Chicago market.

According to the CBRE report, the Chicago region’s data storage is notable for network-dense, low-latency connectivity—qualities that could grow enterprise demand, especially from fintech and healthcare firms. Long-term, more than 200 MW of announced future capacity and the possibility of government incentives could make Chicago one of the most attractive data center markets in the U.S. once again.

North American data center investment volume reached $12 billion in 2018, inclusive of single-asset, portfolio and entity-level transactions. While investment was down from 2017’s record-setting $20 billion, this was largely due to limited North American entity-level investment opportunities compared to 2017.

“The data center market will continue to evolve and adapt to the demands of today and tomorrow,” said Pat Lynch, senior managing director, data center solutions, CBRE. “We expect to see a continued influx of capital into the sector from new investors and infrastructure funds seeking to diversify their portfolios, as well as increased investment and expansion in global regions previously untapped by providers and cloud users.”