It isn’t often that state and local government in Illinois get singled out for a pro-business mindset, but that’s the message coming from people connected to a thriving submarket in industrial real estate — data centers.
As development projects go, data centers aren’t the flashiest things. Some have occupied space in attractive old buildings, the best example being the old R.R. Donnelley plant at 350 E. Cermak Road, reputedly among the largest such facilities in the world.
The newer ones are custom built in industrial areas, low-slung buildings that are necessarily drab, although some have lately dressed up the designs. They are mostly sprawling boxes for the equipment that makes our daily activities possible, be they streaming movies, storing work in a data cloud, trading stocks or riding in a vehicle tricked out with the latest tech.
The rollout of 5G broadband systems and even the pandemic, adding to the need for internet access at home, have juiced demand for data centers. Markets worldwide compete for them, and the Chicago area is a top-rated contender.
A fresh report from real-estate firm Cushman & Wakefield ranked the region as the second-best data center market globally, behind only Northern Virginia, based on standards such as low land costs, reliable utilities, tax incentives and lots of development in the pipeline. The Chicago market finished two slots ahead of Silicon Valley, entitling us to rare bragging rights.
Data centers like to flock together, said Todd Bateman, managing principal of Intelligence & Strategic Advisors, which provides brokerage and research services. He said the presence of some will draw others who are confident the infrastructure exists to keep the computer gear cool, dry and powered.
Bateman also said state tax incentives adopted at the urging of Gov. J.B. Pritzker have been “absolutely critical” to the growth. “This is a sector that is very sensitive to costs,” he said.
His firm counts 52 data centers in the Chicago area. Most are leased to multiple tenants. Brokers say demand is strong enough that new centers have users lined up before construction begins.
The state’s commerce department said since tax incentives were enacted for new projects in 2019, 10 have qualified and three more are pending. Elk Grove Village has become a hub for these developments, its proximity to the communications and transportation nexus of O’Hare Airport making it attractive. Nearby towns such as Franklin Park and Itasca are in on the action, and Chicago proper has many sites.
The state program affords exemptions from certain sales and income taxes, and applies to projects with a minimum $250 million investment and a commitment to hire at least 20 full-time workers in operations and maintenance. To qualify, the jobs have to pay at least 120% of the median wage in the applicable county. These incentives are not among business tax breaks Pritzker proposed rolling back last week.
The knock on data centers is that they don’t represent a lot of jobs, but industry analysts said they tend to pay well and are a pathway to good careers. Jordan Sher, vice president of marketing for Stack Infrastructure, a national firm with two data centers in Elk Grove Village, said there’s a general labor shortage in the field, which helps improve salaries. Each center might account for 25 to 100 jobs, while supporting other workers who rotate in and out, experts said.
“The state of Illinois is a very favorable market for us,” Sher said. “Gov. Pritzker has recognized the value that data centers bring.”
Lauren Huffman, spokeswoman for the Illinois Department of Commerce and Economic Opportunity, said the state incentives have drawn more than 370 jobs and $4.5 billion in private investment.
Craig Johnson, mayor of Elk Grove Village, said his town has nine data centers, with four more coming this year, including an investment from Microsoft. State tax breaks are “huge, huge. They come up in every conversation with the developers,” he said.
The property taxes from the new business helps, but Johnson said the big advantage comes from water and utility taxes. Also, data centers “don’t wear on the town,” he said. They aren’t like subdivisions that draw in school-age children, or industries with pollution or truck traffic.
Johnson said the people who work at or service data centers help the economy. “They fill up our hotels, eat at our restaurants and buy our gas,” he said.
The mayor said many of the data centers are within the town’s 60-year-old industrial park, which it calls the largest in North America, accounting for 65,000 jobs and paying taxes that don’t have to fall on homeowners. Commonwealth Edison substations are planned to serve the data centers. Johnson said the investments have invigorated the industrial park, prompting others to improve their facilities.
Today’s economy depends on rows of servers. Stack Infrastructure’s Sher said it’s an exciting place to be, serving businesses that meet new needs. “There’s a lot of innovation going on, and it requires a lot of space,” he said.