How data centers became the newest growth industry in the suburbs

When the restructured Transformco put its former Sears corporate campus in Hoffman Estates on the market two years ago, much head-scratching and debate followed over how its 273 acres and 2.4 million square feet of office space could be re-purposed in a post-pandemic economy.

But when Dallas-based Compass Datacenters closed on its purchase of the site in September, many local leaders and commercial real estate experts regarded its proposed data center campus as a perfect fit.

In a relatively short period of time, the data center industry has strongly established itself in the Northwest suburbs, through existing and ongoing developments in Elk Grove Village, Mount Prospect and elsewhere in Hoffman Estates.

A blend of several factors enabled this, with one in particular lighting the fuse, according to Josh Levi, president of the Virginia-based Data Center Coalition.

“It was the tax incentive in Illinois that unlocked a lot of the growth you’re seeing now,” he said.

Taking effect in 2020, the state’s program offers data center owners and operators a tax credit of 20% on the wages for construction workers on projects in under-served areas. Among the criteria are an investment of at least $250 million over five years and the creation of at least 20 permanent jobs for the operation and maintenance of the facilities.

But that isn’t the only factor allowing Illinois to join the outward growth of an industry initially concentrated on the East and West coasts, Levi said.

Others include land and energy costs, local taxes, a sufficient construction and operations workforce, connectivity and lower risk of natural disasters.

“I think Chicago is hitting on all cylinders,” Levi said.

The metropolitan area by 2022 had become the second-largest among seven primary markets in the nation, not necessarily related to the size of their populations, he said, citing a recent study by Virginia-based Mangum Economics.

But apart from the factors that make particular sites appealing is the general growth of consumer demand, Levi said.

The second decade of the 21st century saw a more than 600% increase in the computing done at data centers. Studies found that through the increased practice of concentrating facilities together, this was accompanied with a relatively small increase in energy consumption, Levi said.

Today, the average household has 22 devices connected to the Internet. The data center industry is responding to that demand, Levi said.

Not only is the Midwest’s weather conducive to a little nature-provided cooling, but ComEd has declared itself a willing partner to the growth of the data center industry.

“The utility company partner is a very big consideration,” Levi said of a data center developer’s decision of where to locate. “Power companies are not monolithic. It’s part of the utility mission in the 21st century economy we’re living in.”

Brett Collard, vice president of development for Compass Datacenters, said all these factors played a role in the company’s purchase and pending redevelopment of the former Sears site.

“We viewed the Chicagoland region as a great marketplace opportunity for many years,” he said. “The data center market has grown immensely. Our clients were the greatest hyperscalers in the world.”

A hyperscale data center is one used by and for a single company, as opposed to a multitenant facility. Microsoft is developing a data center campus on a smaller scale further east in Hoffman Estates at the intersection of Barrington Road and Lakewood Boulevard.

The aim of Compass is to replicate what it’s already done in other markets, he said. The company is proceeding slowly and methodically first, so that development can go faster and efficiently later.

“The pace will be predicated on demand,” Collard said of the construction process.

Katy Hancock, vice president of community relations, said the data centers will be built from prototypes using carbon-cured concrete that’s mixed with the assistance of artificial intelligence to minimize waste and greenhouse gases.

She confirmed there’s no intent to use the Sears office buildings, which are being made available to local police and fire departments for training in the meantime.

Mount Prospect is the third major hub of data center development in the Northwest suburbs, with the $2.5 billion CloudHQ campus under construction on the former United Airlines world headquarters.