As the use of computers continues to expand and people increasingly choose to work from remote locations, so does the need to preserve and store the digital data they create on a daily basis. And even though the computer industry euphemistically refers to those data storage places as “clouds,” the truth is that all of that data is being stored on racks and racks of servers in huge data centers around the world.
The recent advent of artificial intelligence is only increasing that storage need exponentially, too.
So, more and more data centers for companies like Microsoft, Oracle, Google, Facebook and Amazon, as well as groupings of smaller companies, are needing to be constructed to keep up with current and future demand for data storage.
The O’Hare/Chicago area is one of the top such markets in the country, according to Jim Kerrigan, founder and managing partner of North American Data Centers (NADC) in Chicago.
Kerrigan founded NADC in 2014 as the first real estate company focused on acquiring, leasing and selling data centers throughout the United States and Canada. Since 2016, he has sold more than 4 million square feet of data centers; completed the sales of 27 properties worth over $1.7 billion; and negotiated numerous lease renewals on behalf of tenants and licensees.
“The construction of data centers doesn’t tax a local economy by using its roads and sanitary sewer lines and adding students to its schools, but it does bring in a large, skilled construction team and in the long-term, 30 to 75 high-paying jobs in IT, operations, maintenance and security. It is also able to increase utility taxes and property taxes to the local municipality. These buildings will also have a much higher basis compared to a typical industrial building, as construction can cost upwards of $1,200 per square foot,” Kerrigan stated.
In addition, revenue generation to a Village including power tax, utility tax, permitting expense, etc. can be three to four times more than that yielded by an industrial warehouse development.
“Three different times in recent years in Elk Grove Village alone, data centers brought in such a windfall that each household received a $200 rebate from the local government,” he added.
For instance, Elk Grove is allowing several buildings in the old Northwest Point office center just south of the Northwest Tollway on Arlington Heights Road to be torn down and replaced with a five-building Aligned Data Centers facility. Stream and Prime also have new Elk Grove data center facilities in the pipeline.
In neighboring Itasca, NTT Global Data Centers, the third largest data center provider globally, is developing a new 270,000-square-foot data center and an electric substation within the Hamilton Lakes Business Park, according to Vijay Gadde, Itasca’s community development director. The first data center opened in 2019, and the second one is almost complete.
Currently, many data centers are being delayed due to a global shortage of circuit breakers and transformers. These may not be ordered in anticipation of a pending data center deal but must wait until the developer contracts with the utility, Kerrigan explained. So that can, in many cases, substantially delay the opening of a new center.
Power is the benchmark of a data center, he continued. When multi-tenant data centers were initially being built around 2008, the power needed was between 5 and 7 kilowatts per server cabinet. With the advent of public computing clouds in 2013, that number rose to 20 kilowatts per cabinet and now, with artificial intelligence, it has climbed to between 60 and 120 kilowatts per cabinet.
So new data centers are being built as multi-floor properties to maximize the use of expensive land, and they are being built to handle very heavy loads consisting of servers, racks, generators, cabling and cooling systems, Kerrigan added.
“Municipalities like attracting data centers because they generally generate three to eight times more revenue per square foot in terms of property taxes than new construction industrial buildings do,” explained Matt Roan, village manager for Elk Grove.
“Second, the permit fee for a new data center can be upwards of a million dollars per building, plus they are regularly upgrading their interior infrastructure…and those tend to be very large permit fees, as well,” he continued.
“Third, for a municipality that has an electric utility tax, data centers generate massive revenue streams due to the very large amount of electricity that they consume on a daily basis, and fourth, some data centers are water-cooled and those facilities tend to be our largest purchasers of water in the Village,” Roan said.
Additionally, because of the dollar amount that is invested at these sites, data centers – unlike logistic companies and others – end up being very long-term land holders in the municipality and are very unlikely to just up and leave.
“With that being said, Elk Grove Village has nearly 65 million square feet of industrial space in the business park, and data centers take up only about 10% of the total space. Moreover, with the cost of land being high and land, in general, being so scarce, data centers are now going vertical unlike your big box logistic facilities. So, you are getting more building square footage on the same footprint of real estate,” Roan added.
Not all vacant office parks can be converted into data centers, however. There are several key pieces of infrastructure that are needed to make this work, he said. First and foremost, they need easy access to heavy loads of power. Second, they need access to the major fiber trunks. And last, they may or may not need access to a large water supply if the data center runs a water-cooled system.
“There are currently about 10 operators working out of just over a dozen different facilities in Elk Grove,” he stated. “In the next five or so years, we could see another two to four operators in an additional 20 buildings. Much of this is being driven by the explosion of AI.”