Population Density, Central Location Cement Chicago As A Top-Three Data Center Market
When it comes to data center real estate, the Second City is top-notch — or top three in the U.S. for absorption, according to a new report from CBRE. Chicago had a net absorption of 36.2 MW in 2016, shattering 2015’s high of 28 MW and putting Chicago within sniffing distance of Dallas-Fort Worth (37.6 MW) for second place.
CBRE director of data center research Jeff West said Chicago has always been a top-five market thanks to a combination of low utility rates, solid fiber infrastructure and growing demand from cloud users. Chicago’s central location and population density paced the absorption rate last year. With over 10 million people, the greater Chicago area has the nation’s third-largest population center, and a vast majority of the population is using cloud technologies in some form.
The market’s Central time zone makes it an attractive data center point and a critical fiber hub for end users on the coasts seeking easy, hands-on access to data center sites.
CBRE first vice president Aaron Kulick said Chicago’s status as a transportation hub may be the single greatest factor behind the record data center absorption rate. Chicago’s growth in the 19th and early 20th century was due in large part to a confluence of rail lines, which made the metro a meeting point between the East and West coasts. Those lines were long used for telecommunications, making Chicago a highly connected market.
Today, end users can fly in to either of the city’s airports and be at their data centers shortly after deplaning. O’Hare is one of the strongest performing data center submarkets because of the ease of access, and that has been reflected in new data center development like Ascent Data Centers' CH2 campus in Northlake and Forsythe data center in Elk Grove Village.
Kulick said one of the fastest-growing suburban data center submarkets is Aurora, where CyrusOne paid CME Group $130M for a 428K SF data center, signed CME to a 15-year lease on the site and is planning a major expansion to accommodate demand.
West and Kulick said it will be interesting to see if Chicago can maintain its status as a top-three data center absorption market in 2017. Chicago is closing in on 5% vacancy in the sector, but there are new deliveries coming online in the next two years that may affect that. Kulick said demand will continue to be strong as more companies look to Chicago to provide low-latency service to users.
As for whether Chicago can rise in the rankings and challenge Northern Virginia (84.4 MW of net absorption in 2016) for the top spot, Kulick does not think so. “Northern Virginia is a unique market. There are tax incentives in place to encourage development and land is easy to acquire,” he said.
But Chicago can improve its infill opportunities and older data centers can upgrade their power grids and services to drive further development. An example is Digital Realty Trust, which is expanding its data center footprint near McCormick Place. When it is completed, Chicago will be home to the eighth-largest data center in the world, capable of producing 54 MW of load.