Given its prominence as the third largest metropolitan population center in the U.S., the Chicagoland region is the fourth largest data center market behind Northern Virginia, Silicon Valley and Dallas-Fort Worth, in that order. Chicago does have several key advantages in data center site selection that have contributed to its Top 5 status, including robust fiber connectivity, reliable power and minimal environmental risks. Chicago’s northern U.S. location also provides a climate benefit, as data center operators and cloud computing companies can utilize “free cooling” for the majority of the year, allowing these operators the ability to pump in outside cold air to lower their power costs.
Chicago has always been a financial hub with such well-known names as the Chicago Board of Trade and the Chicago Mercantile Exchange that have developed significant data center infrastructure both in the downtown core and across the region. But the region has remained a distant fourth place as it has also been limited by other factors including expensive land prices for new suburban developments, above-average construction costs and higher overall sales and property taxes.
Illinois has finally ratified economic incentives for data centers
Economic incentives have always been an important component in many data center and colocation development decisions. The Northern Virginia region comprising Ashburn and Loudoun County is a great example of these incentives over the years providing the stimulus to locating in Ashburn versus another suburban market or state surrounding Washington D.C. Other markets such as Phoenix and Dallas-Fort Worth have also taken advantage of attractive incentive offerings to grow their data center and colocation community.
In 2019, the state of Illinois passed an economic tax incentive geared toward large data centers, exceeding $250 million in total investment and at least 20 jobs. The incentive includes both state and local sales tax exemptions over a 10-year period on data center equipment purchases. Illinois also has additional incentives for investment in depressed areas, which has benefited some areas of Chicago for data center investment.
These incentives are important to level the playing field as Chicago competes with other U.S. markets. While Cook County and its county seat of Chicago still have very high taxes, including a 10.25% sales tax, nearby counties such as DuPage (with much lower sales tax rates), stand to benefit from these incentives if the development can meet the investment threshold.
Chicagoland Data Center and Colocation market history
In the late 1990s, during the internet growth-fueled expansion, Chicago’s primary and only expansion was focused in the downtown area in such ultra-connected carrier-neutral facilities such as Digital Realty’s 1.13 million-square-foot 365 Cermak building, its nearby 600 South Federal telecom hotel and with CoreSite’s 427 LaSalle. It was only after the dot-com bust that colocation operators considered larger suburban locations. In 2007, both DuPont Fabros (now part of Digital Realty) and Equinix pursued new developments outside of Cook County in Elk Grove Village. Then followed Microsoft’s 700,000-square-foot Northlake data center (originally constructed by Ascent).
The pace of data center development and data center site selection in suburban Chicago accelerated in 2012 with Digital Realty’s purchase and re-development of its Franklin Park campus and Ascent’s expansion of its Northlake campus. Chicago has now drawn major new development and expansions from just about every major data center developer and wholesale colocation operator.
The colocation and data center development landscape is very competitive
According to recent research from datacenterHawk, the greater Chicago market is home to more than 3.39 million SF of commissioned data center space, representing 325 megawatts (MW) of commissioned power. The competition in Chicagoland is comprised of all of the heavyweights in the wholesale colocation and turnkey data center sectors. The following are just some of the major competitors:
Demand for data center and colocation space remains very strong across this major data center market, especially during this challenging times with the coronavirus pandemic as companies rely on robust IT infrastructure to deliver where their employees are now housed. Chicago will continue to benefit from market demand, despite its construction and cost challenges.