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Are Chicago Data Centers At Risk Of Losing Their Competitive Edge In A Global Market?

Chicago's data center market is going to be transformed over the next few years in ways that are hard to predict, but which will be profitable to astute owners and operators, if they can provide the high-quality product that customers demand.

Will that be possible? Are Chicago data centers still competitive in an increasingly global data center market? The speakers at Bisnow's DICE Midwest event Aug. 28 will address these questions and more.

T5 Data Centers Executive Vice President, Enterprise Markets Craig McKesson

In an age of constant streaming and other data-intense tech, perhaps no other feature will be more important that stone-cold reliability.

"The data center has become the foundation of modern business, so whether it’s an enterprise or hyperscale-cloud facility, reliability, uptime and a sharp focus on customer service have become the primary differentiators between service providers now and in the future," T5 Data Centers Executive Vice President, Enterprise Markets Craig McKesson said.

"At T5, we call this Forever On," McKesson said. "The goal is providing confidence that their business will be supported without interruption."

Atlanta-based T5 is expanding its presence in the Chicago market with the second phase of T5@Chicago, a 208K SF Tier III data center in Elk Grove Village. Late last year, a hospital network inked a deal to be the first tenant to occupy the second phase, followed by a second pre-lease by another tenant in early 2018.

“Chicago is becoming one of T5’s hottest markets,” T5 Vice President of Sales and Marketing David Horowitz said. “We're experiencing more demand from the corporate enterprise users who are requiring purpose-built data centers."

The Schulze Baking plant will be repurposed into a data center by 1547 Critical Systems Realty.

“Chicago is a tight market, but the latest deliveries will provide larger users, who have accounted for a majority of the market absorption in recent years, options to deploy additional infrastructure under quicker time frames,” CBRE First Vice President Aaron Kulick wrote in a report. “We’ve seen similar conditions in the past drive strong market activity.”

Data center capacity grew by more than 60% in the Chicago market between 2015 and 2017, according to CBRE data. The only markets in the country with more inventory are Northern Virginia and the Dallas-Fort Worth area.

In 2017, Chicago added 43 megawatts of supply, and more deliveries are expected this year, with 16.6 MW underway. That doesn't counting the latest development deal announced just at the beginning of August — a 24 MW data center project finally getting underway at a former South Side baking plant.

CIM Group acquired The Schulze Baking plant at 55th Street and Garfield Boulevard for $7.5M, a deal that allows 1547 Critical Systems Realty to repurpose the historic structure into a data center.

Investors are keen on the Chicago-area market as well. Digital Realty Trust's $315M acquisition of Ascent's Northlake data center from Carter Validus Mission Critical REIT in October was the largest single data center trade in North America last year.

eStruxture Data Centers President and CEO Todd Coleman

The coming changes in the data center market are more than just about increasing demand, however. Other forces are at work reshaping the industry.

"While still in relative infancy, edge computing will have an increasing impact on data centers, as well as enterprises," DataBank Chief Technology Officer Vlad Friedman said. "It will change the paradigm of how applications are built and will address latency challenges, and the need to have massive amounts of concentration at the compute and storage levels."

"Edge computing will spur the market to rethink how to build more decentralized applications with microservice architectures, which can then serve thousands of locations," Friedman said. "We will see edge computing driving increased demand from a variety of sectors including healthcare, gaming, autonomous vehicles, and others." 

Todd Coleman, eStruxture Data Centers' president and CEO, said that as 5G rolls out and the U.S. enters the Internet of Things era, data centers will need to be deployed well beyond primary, secondary or even tertiary cities.

"Data centers in the far edge will not be able to be manned 24/7/365, so they will have to be heavily automated and software-defined, operating essentially on their own," Coleman said. "We're going to see a rise in smart edge data centers. I expect AI to propel efforts to reach software-defined data centers that self-regulate in real time. We'll see a lot more automation beyond variable frequency drives, with the ability to include predictive analysis in our systems."

Though Chicago will likely remain a strong node of the global data center market, other markets — in other parts of the world — are on the rise as competitors. Host in Ireland President Garry Connolly makes the case for a market like Ireland as a competitor in the world market.

"With an understanding of how to meet needs across the board, Ireland has the ability to offer companies the support they need when hosting their digital assets in the EMEA region," Connolly said. 

To be competitive, a market needs pro-business policies, a critical mass of global companies (Ireland has more than 750 U.S. companies present), a strong workforce, available power and the geographic position to provide secure and resilient low-latency global connectivity, Connolly said.

T5's McKesson, DataBank's Friedman, eStruxture's Coleman and Connolly will all be speakers at Bisnow's DICE Midwest event Aug. 28 at Digital Crossroads at Lake Michigan in Hammond, Indiana.