Quicker clicks: Why data centers are a growth industry in the suburbs
In large, mostly nondescript buildings around the Chicago area, vital components of the internet are sprouting up at a very rapid pace.
Many of the data centers that allow Americans to click and buy or read faster than ever are in Chicago, Elk Grove Village, Mount Prospect, Hoffman Estates, Lisle and Northlake. More are on the way at a record clip.
"Throughout the country it is unprecedented growth right now. I've been doing this since 1998 and I've seen growth in the country but nothing quite like what it is right now. The Chicagoland area is one of the beneficiaries of it," said Jim Kerrigan, managing principal of North American Data Centers in Chicago.
"Chicago's on the leading edge of becoming one of the data hubs of the U.S., certainly," added Andrew Schaap, CEO of Aligned Data Centers, which builds multi-tenant data centers, including a big one in Northlake.
In the United States, northern Virginia is by far the leading location for data centers. The Chicago area is in the second tier (along with Dallas, Phoenix and the Bay Area), rotating in and out of the tier's top spot as the data center industry grows to keep up with Americans' appetite to buy goods online and keep up with our social media contacts and do both as quickly as possible.
"You use it every single day of your life and you don't know you're using it," Kerrigan said.
What is a data center?
Data centers often are located in industrial parks and look on the outside like a common warehouse. They are much more than that, of course. Inside, instead of goods waiting to be shipped to stores or consumers, there are extremely valuable racks of computer components performing extremely valuable tasks for American businesses.
The buildings reflect the value of their contents. A data center is built to be much more wind and water resistant than typical industrial buildings and costs more to build because of that. The price to build the average warehouse is roughly $100-$150 a square foot, but data centers are $700-$1,000 a square foot to build, Schaap said.
They're also bigger than ever. Fifteen years ago each new data center might have cost $30 million to $40 million to build. Now it's around $200 million to $400 million, Schaap said.
In the Chicago area they are focused around the former R.R. Donnelly building in Chicago near Soldier Field and McCormick Place. Now called Lakeside Technology Center, data centers are built around the area to take advantage of its high interconnectivity. In the suburbs they are still close, but land is more plentiful and less expensive than in Chicago.
While data centers have been around for a couple of decades, Evoque Data Center Solutions Vice President of Strategy Drew Leonard dates this surge in growth Chicago to Superstorm Sandy, which hit New York hard in 2012. That storm convinced the many financial giants in New York to build backup systems in Chicago, another big financial market.
Eventually, Leonard said, this area became the primary site for financial company data centers.
They're still growing, but the biggest market is with social media companies. And of the social media companies, Meta -- parent company of Facebook and Instagram -- is growing the fastest by far. Meta already has an important facility in Aurora and is building a billion-dollar facility in DeKalb.
There's no sign that the growth in data centers will slow anytime soon, especially after the pandemic gave the internet a big boost.
"I remember sitting in a … board room (in 2003) where they said, 'This can't continue, this can't continue.' And Orrin, it's only been like this," Schaap said, angling his right arm upward on the Zoom screen as our conversation continues as seamlessly as if we were face to face -- thanks to data centers.
Judging by the big smile on Schaap's face and the enthusiasm in his voice, it's a fun time to lead a data center company.
"We've raised about $3.5 billion in the last six, seven months," Schaap said. "We're having a lot of fun right now."
Why the suburbs?
Elk Grove Village has become known for data centers. There are 14 data centers in Elk Grove alone, and more are being built. In the next two or three years, Elk Grove Village Mayor Craig Johnson expects to have a total of nearly six million square feet of data centers, and the village averages a call or two a week from companies looking to locate there.
"We're the choice out there," Johnson said.
That space has a minimal impact on the community, Johnson said. There is not a lot of traffic associated with data centers, but they generate a lot of tax revenue.
There are several reasons why this market is so hot when it comes to data centers, including because it's so cold.
That's right, even our winter weather is enticing for companies looking to site data centers. It makes sense: If you can cut back on the air conditioning needed to cool those computer components, it helps the bottom line.
"It actually creates quite a bit of efficiency in the way we operate the site, which turns into dollars saved, carbon saved, electricity saved, all that kind of stuff that get passed on to the client," Aligned's Schaap said. "So it's a net benefit to be in a little bit cooler environment because of the heat that's created from all the computers that are doing all the work to support the internet."
Another weather issue: The Chicago area doesn't have many extreme storms that could interrupt service.
But the weather is a relatively small factor. A much bigger factor is power. The Chicago area is rich with moderately priced power. No power, no data.
Data centers require a tremendous amount of power. No data centers are planned in the Chicago area without the builder first reaching out to ComEd to make sure the site can sustain an adequate power supply, said Ed Sitar, head of economic development at ComEd. ComEd has been kept busy for a while now.
"It's been a growth sector for us over the last decade or so," Sitar said, noting ComEd has about 75 data center customers locally, with 15-20 of them being sited in the last five or six years.
These companies also are picky about their power.
"They want renewable power, clean power because some of these tech companies are consumer-facing, someone like a Facebook, for example, and that resonates with their users. And that's a corporate goal that they have, to be 100% renewable or 100% clean by a certain timeline," Sitar added.
Another very important factor in siting data centers is the fiber-optic cable. No fiber, no internet, and being in the middle of the country, we have cable that stretches coast to coast, much of it along the many rail tracks that run through the Chicago area.
The size of this market also is a factor. Companies want to be close to their customers. It's just another way to keep the latency in the internet connection to a minimum.
"Businesses have figured out that that quality of experience is just incredibly important to keep consumers happy," Schaap said. "So that's why you're seeing data centers pop up not only in Chicago but you're seeing data centers pop up in what I call secondary markets, or smaller markets. They're just trying to move closer to those population centers to support those customers."
Illinois took action in 2019 to make the state even more attractive to data center companies, passing legislation with billions in tax incentives.
"In today's world, data centers are as critical a part of our infrastructure as our roads, trains and schools," said Governor J.B. Pritzker in a news release in October 2019. "With the legislation I signed into law, we are welcoming a surge of economic development, labor income and good union jobs to Illinois -- and not just here in the established market of Chicago, but across our whole state."
It was a long time in coming, North American Data Centers' Kerrigan said, but it's a "game-changer."
"That was huge, that was huge," Mayor Johnson added. "Microsoft, for example. Microsoft is building one of the newest, most advanced state-of-the-art facilities here in Elk Grove. Matter of fact, President Biden came to that location in October. That (legislation) was one of the key points that got Microsoft to build this facility in Elk Grove."
Microsoft is investing $10 billion in that 40-acre facility, Johnson said. It's something the village can brag about when it looks to attract more businesses.
"Those numbers are staggering when you think about it. ... That's a nice feather in our cap, and we appreciate that," Johnson said.
"Chicago's got tremendous attributes which is always going to make it a top-tier market. It's not going to slow down anytime soon," Schaap added.
What does it mean for our economy?
Data centers don't bring many permanent jobs with them, but the construction and post-construction jobs they bring are highly specialized and thus well paying. This is where it helps Illinois that our state produces so many electrical and mechanical engineers, as well as so many blue-collar workers.
"Chicago's got a great workforce that's ready to go to work and both from electrical and mechanical contractors but also technology people," Schaap said.
"... Our customers then come in and populate these data centers with large deployments of server-storage-networking devices. Just rows and rows and rows of computers. The employee base for them happens to be more technical."
The Chicago area isn't going to turn into a mini-Silicon Valley anytime soon, but these data centers do help expand our technology sector and diversify our economy in ways that are fairly recession-proof, Evoque's Leonard said.
So get ready for news of more data centers entering our area.
"I do not see it slowing down, and I see the magnitude of the projects that we have kind of already sort of committed and under construction, the next wave that I'm seeing in our prospective queue is even larger than that," ComEd's Sitar added. "I just met with a company earlier this afternoon that, the amount of power, it's unbelievable what they're going to request."