The Real Deal Chicago

Chicago among top data center markets in US, report says

CBRE says demand expected to keep rising among large-scale cloud users
By John O’Brien | April 10, 2018 08:00AM

CyrusOne’s Aurora data center (Credit: CyrusOne)

Driven by high demand for digital storage, investment in the U.S. data center sector reached record levels in 2017, with Chicago climbing to the third-largest market in total inventory.

That need is expected to keep rising, according to a new report in CBRE, which ranked the city behind only Northern Virginia and Dallas/Fort Worth.

Chicago added 43 megawatts of supply for a total of 230 megawatts. About 4,000 computer servers generate a total of 1 megawatt of power. That many servers require an enormous amount of space to house, in addition to the expense of building out the data centers.

The high demand for power left the Chicago market “supply-constrained,” with only 20 megawatts available at the end of 2017.

The most notable addition to the local market came in the second half of the year, with the real estate investment trust CyrusOne’ 9 megawatt data center expansion in far west suburban Aurora, the report said.

Todd Bateman, who leads CBRE’s data center solutions practice for North America, said the market has been on an “elongated period of expansion” that the report attributed to growing demand among large-scale cloud users.

And Bateman said the demand for the storage centers will continue to grow dramatically as driverless vehicles, artificial intelligence and other technological advances require more supply. That will entice more landlords to enter the “capital-intense” market in which costs to build out centers to completion can run $1,000 to $1,500 per square foot, Bateman said.

“More and more people are getting more and more comfortable saying, ‘Hey, maybe I’ll place a bet,’” he said. “There are lots of reasons to be very bullish.”

Chicago-area data centers are concentrated in three main areas: Downtown, near O’Hare and in the far western suburbs, he said.

“Long term you’re going to see more meaningful developments into the region,” he said.

Digital Realty, T5 Data Centers and QTS facilities in the region are expected to add another 16.6 megawatts of capacity, according the report.

Brennan Investment is building the Elk Grove Technology Park on 85 acres, while RagingWire Data Centers is building a 200,000-square-foot center on 19 acres at Hamilton Lakes Business Park in Itasca, according to Bisnow.

CBRE forecasts that nearly 300 megawatts of data center space will be completed in primary markets this year.

Nationwide, investment activity in 2017 was heavily weighted by several large transactions, including San Francisco-based Digital Realty’s $7.6 billion merger with Washington, D.C.-based DuPont Fabros.

And Digital Realty’s acquisition of the Carter Validus site at 505 North Railroad Avenue in west suburban Northlake for $315 million marked the sector’s largest single-asset transaction of 2017 in North America, according to the report. The property sold for $212 million just five years earlier.