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How Chicago's Data Center Market Realized $500M In New Development In 2017's First Half

At Bisnow's fifth annual Chicago Data Center Boom event last September, the experts in the sector agreed there was ample room for growth in Chicago's data center market. Fast forward a year and not only has that growth been realized, it exceeded expectations.

JLL Managing Director Sean Reynolds

JLL's Summer Data Center Report reveals the Chicago data center market saw over $500M in data center development in 2017's first six months. There is 56 megawatts of new construction in the pipeline. Four of the major data center REITs — Digital Realty Trust, QTS, Dupont Fabros and CyrusOne — account for 44 MW of spec product. And 17 MW of that inventory is pre-leased. 

Demand from hyperscale companies like Microsoft and Google has remained consistent, but JLL Managing Director Sean Reynolds said Chicago is beating other markets in the enterprise user arena. Fortune 1000, healthcare and financial services firms have slowed their cloud demand nationwide, but those deals are exploding in Chicago. Both hyperscale and enterprise cloud users are investing in Chicago because of the market's confluence of low utility rates, solid fiber infrastructure, central location and population density.

In 2016, enterprise leasing activity was minimal because firms were suffering from cloud paralysis. They wanted to show their boards there was a cloud and plan to utilize it, but they did not have a complete understanding of what to deploy to the cloud and what should remain directly connected. 

"Those firms are now comfortable working with the cloud, and good credit enterprise users are receiving favorable co-location requirements," Reynolds said.

Here is another sign that enterprise users are driving activity: Firms are doing multiple projects in the 200 kW to 1 MW range, while 2MW to 6MW projects have decreased.

A rendering of Digital Realty Trust's planned 12-story data center at 330 East Cermak Road, Chicago.

While enterprise users have announced their presence with authority, hyperscale users continue to absorb inventory at a strong pace. Apple and Oracle, in particular, have made large deployments in the Chicago market in H1. And while several new blocks of space have opened up options for users, planned cloud expansions and deployments will take down those blocks quickly. 

Reynolds said Digital Realty Trust's $5B acquisition of Dupont-Fabros in June will have a negligible effect on asking rents moving forward. Competition from the other giant data center REITs will keep the newly merged company on its toes, and both QTS and CyrusOne have plenty of inventory. QTS is moving forward with Phase 2 of its Pilsen data center. CyrusOne began an expansion of its Aurora data center last November to meet customer demand and has good working relationships with financial services firms seeking cloud space.

If there is future barrier to entry in the market, it would be power infrastructure. Reynolds said a lack of reliable power in some submarkets has had an impact on site selection. For clients needing more than 5 MW of power capability, Reynolds recommends they ask about utilities and landlord access to power, and he identified Elk Grove Village as one submarket that is tapped for power.

ComEd is responding to this demand by adding more power in the next 18 to 36 months, but Reynolds said there will be a small but meaningful 12- to 18-month gap to catch up.

To learn more about the state of Chicago and Midwestern data center investment, attend Bisnow's Data Center Investment Conference & Expo, Midwest event, Sept. 28, in Chicago.