Windy City Proving Resilient To Headwinds Facing Data Centers Elsewhere

Chicago has so far avoided the worst of the mounting challenges facing data center developers in other major markets. 

The nationwide data center building boom has brought with it growing challenges for developers looking to build in the industry’s most important hubs. In places like Northern Virginia, Silicon Valley and Atlanta, constraints on available power from utilities and rising land prices have made development increasingly difficult and slowed the industry’s growth despite record demand. 

But compared to other top-tier data center markets, the challenges facing data center development in Chicago and its suburbs have been relatively mild, industry executives said at Bisnow’s DICE: Midwest event last week at the Hyatt Lodge Oak Brook Chicago.

While Chicago hasn’t been immune to the problems plaguing the industry, panelists said the diverse array of tenants driving demand, combined with industry-friendly utilities and a relatively large supply of developable land, have made the market comparatively resilient in the face of these headwinds. 

“Unlike the other Tier 1 markets that are facing severe challenges with things like power availability, Chicago has been a little more robust and has withstood those challenges a little bit better,” said Kemal Hawa, a longtime data center attorney and shareholder at Greenberg Traurig.

Chicago is the third-largest data center market in the U.S., with 589 megawatts of nonhyperscale inventory, according to CBRE. The Chicago market has grown faster than all but two other primary data center hubs since 2020, a period in which the market’s inventory grew by 118%. 

Several major data center projects have emerged in the Chicago market so far this year. This week, developer T5 broke ground on a 250K SF campus in Northlake, its second project underway in the market after announcing plans for a 2M SF campus in Grayslake in May.

Compass Datacenters began construction in June on a $10B campus in Hoffman Estates, while August saw the acquisition of the former Cboe headquarters in Chicago by Prime Group, which intends to convert it into a 50-MW data center. Other projects include Iron Mountain’s campus under construction in Des Plaines and a planned CyrusOne data center in Aurora. 

The area's growth trajectory is expected to continue in part because the power constraints stymying development in other top markets have been less severe in Chicago, panelists said. Wait times for utilities to connect new data centers to the power grid are as long as seven years in some markets, with utilities in industry hubs like Silicon Valley and Columbus, Ohio, effectively pausing new grid connections for data centers altogether. 

GI Partners Managing Director Michael Lee said the firm’s project in Elk Grove Village, a joint venture with Digital Realty, will only receive additional power needed to expand the site in 2029. But Chicago remains the rare major market where sites that can get large blocks of power quickly are available at all. This comes even as power demand from data centers is expected to increase ninefold in the coming years. 

It is a differentiator for the Chicago market that Primary Digital Infrastructure principal Peter Hopper attributes to having sophisticated utilities in the region with long-term experience and expertise working with the data center industry. Many utilities in data center hot spots were caught off guard by the industry’s surging electricity requirements over the past two years and are scrambling to launch massive infrastructure improvements to meet demand.

But Hopper said Chicago-area power providers like ComEd better anticipated this load growth and were ahead of the curve in making improvements to their transmission systems. 

“You've got utilities that serve this part of the country that have been very forward-thinking about investing in their transmission infrastructure and the grid and generation capacity, so that this is one of the few major markets in the country where you can still get power in size to new sites,” Hopper said. “That's a major problem holding development back elsewhere.”

The political landscape in Chicago is also conducive to data center development, executives said. At the state level, Illinois has a data center tax incentive program. And while many municipalities in major data center markets have been launching efforts to limit data center growth, Chicago officials are taking steps to encourage it. 

Hopper also said Chicago has a low cost of developable land compared to other major markets. 

Until recently, land pricing wasn't a major factor in data center site selection, accounting for just a small percentage of a project’s overall profit equation. But that is changing. Acute scarcity of developable sites with access to power is driving up land values in many markets, Bisnow reported last month. This is changing the development math for many data center firms, with smaller companies increasingly priced out of major markets. 

The relatively low land prices in and around Chicago are due at least in part to the presence of long fiber and electric infrastructure corridors running through the city that make large swaths of the surrounding area appropriate for data center projects, said Phillip Koblence, chief operating officer of data center firm NYI.

Koblence pointed to the fiber and power infrastructure that runs through 350 East Cermak, a Digital Realty-owned data center that is one of the largest and most important connectivity-focused “carrier hotels” in the country. 

“It goes the full length of Illinois, and it gives you a huge expanse of space that you can leverage where you have that combination of network density and ability to deliver power,” Koblence said. 

The presence of 350 East Cermak reflects another factor that DICE: Midwest speakers credited for Chicago’s resilient growth outlook: a more diverse array of tenant use cases than exists in most other major markets. 

Some major data center hubs, such as New York, are primarily markets for multitenant colocation and connectivity-focused workloads. Others, like Atlanta and Columbus, have seen the vast majority of their growth come from hyperscale development. 

Chicago, by contrast, is a mix. 350 East Cermak makes Chicago a key national connectivity hub, while the city’s massive population and role as an economic epicenter supports robust demand for multitenant colocation inventory. At the same time, the area has seen an influx of hyperscale development, particularly near O'Hare International Airport and in surrounding communities like DeKalb. 

“Chicago is a great microcosm of the data center industry. You’ve got everything from companies with three racks to large hyperscale deployments, and it’s a large market to get interconnect,” said Gordon Kellerman, executive vice president at Skybox Datacenters. “What’s happening here is what's happening across the U.S. right now.”