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After construction surge caused vacancy rates to soar, data centers now want state subsidies

Wednesday, Jan 30, 2019 - Posted by Rich Miller

* September of last year

A surge in the construction of Chicago-area data centers has ballooned the industry’s regional vacancy rate from 2 percent to 11 percent since last year.

Pushed by businesses’ growing demand for cloud-computing storage, developers built almost 57 megawatts of capacity — enough to power more than 16,000 homes — around the metro area since last year, according to CBRE data reported in Crain’s. That’s about twice the region’s typical annual pace of data center construction.

Digital Realty accounted for the bulk of the expansion when it built a 305,000-square-foot data center in Elk Grove Village in fall 2018, adding about 29 megawatts of capacity. And ComEd broke ground last year on an expansion to its substation in Itasca, aiming to add 180 megawatts of capacity by the end of 2019.

* And now

Illinois should offer financial incentives to get companies to build big data centers here, says a report released Friday by the Illinois Chamber of Commerce Foundation.

Otherwise, it will continue to miss out as centers build in states that do — including neighboring Iowa, where Apple is getting a $208 million break on local and state taxes for a $1.3 billion facility it is building.

ICC President Todd Maisch, speaking to business and civic leaders in Aurora, likened it to the value of railroad development in the 19th century or highways in the 20th century.

“This is that important. It is a growing market. Illinois is growing in this area, but we don’t get nearly enough of what we should get based on our history and based on the economic potential of our state,” he said.

They’re already building huge data centers. The problem is the customer base.

The study, by the way, is here.

* Tribune

The only markets in the country with more data center capacity – measured in megawatts — than the Chicago area are Northern Virginia, home to many of Amazon’s data centers, and the Dallas-Fort Worth area, according to information from real estate firm CBRE. But Northern Virginia’s market is much larger and growing much quicker.

The Chicago market is 40 percent smaller than the Northern Virginia market, which grew 16 percent between June 2017 and June 2018, according to the Illinois chamber report. The Chicago market grew only 7 percent during that time.

Chicago developed as an attractive market for data centers for the same reason it became a hub for railroads: its central location. Much of the fiber optic cable the internet runs on was laid along railroad tracks, and Chicago acted as the connector between east and west. Plus, the city has reliable electricity and isn’t at risk for the hurricanes or earthquakes that threaten the coasts.

       

27 Comments
  1. - Anonymous - Wednesday, Jan 30, 19 @ 12:48 pm:

    yeah but….Foxconn


  2. - Nonbeleiver - Wednesday, Jan 30, 19 @ 12:51 pm:

    What is the position of the Illinois Policy Institute on such financial “incentives/tax support”?


  3. - unspun - Wednesday, Jan 30, 19 @ 12:52 pm:

    Instead of “if you build it, they will come”, the Chamber mantra is “if they build it, we will beg for corporate welfare”.
    That’s the free market Chamber at its best. Even Dunkin might blush at this chutzpah.


  4. - Anonymous - Wednesday, Jan 30, 19 @ 12:57 pm:

    Give us money they said.. We’ll build liquid crystal display panels.. They said…

    No thanks.


  5. - Not a Billionaire - Wednesday, Jan 30, 19 @ 12:58 pm:

    No no no and neck no. Illinois chamber go away.


  6. - wordslinger - Wednesday, Jan 30, 19 @ 12:59 pm:

    Maisch doesn’t seem to be keeping track of market conditions. Curious that, for a chamber president, looking for gubmint handouts.

    Who did his study? The chamber’s favorite former legislator, Ken Dunkin?

    Hang in there, Todd.


  7. - Thomas Paine - Wednesday, Jan 30, 19 @ 1:02 pm:

    Heads we win, tails you lose.


  8. - SW - Wednesday, Jan 30, 19 @ 1:03 pm:

    This guy is nuts. We have excess capacity without subsidies, so we need subsidies to build more excess capacity. Want he wants is a subsidy to lower costs so the market rates they can now get are more profitable. Corporate welfare at its best.


  9. - Dan Johnson - Wednesday, Jan 30, 19 @ 1:06 pm:

    Enough with the industry-specific tax breaks.


  10. - Notorious RBG - Wednesday, Jan 30, 19 @ 1:08 pm:

    Yeah let’s give some big tax breaks to companies that don’t need them… that worked out really well for Wisconsin.


  11. - Colin O'Scopy - Wednesday, Jan 30, 19 @ 1:10 pm:

    The lure of data centers as job creators is a siren song. They actually create very few jobs after construction and basically run themselves. The Iowa data centers for Facebook, Apple and Google have less than 50 people in each or so I am told.


  12. - njt - Wednesday, Jan 30, 19 @ 1:12 pm:

    ===Finally, this economic activity would also be responsible for generating a total of approximately $66.7 million in tax revenue in 2018, of which $20.2 million would be state and local tax revenue.===

    From page 32 of the report. Obvious next assumption is that these tax incentives would further decrease that $20 million.


  13. - Pyrman - Wednesday, Jan 30, 19 @ 1:12 pm:

    ICC is against raising the minimum wage but is okay with and promotes corporate welfare


  14. - njt - Wednesday, Jan 30, 19 @ 1:13 pm:

    Colin, correct, page 30 of the report tries to gloss over that glaring fact rather quickly.


  15. - JS Mill - Wednesday, Jan 30, 19 @ 1:21 pm:

    =Illinois should offer financial incentives to get companies to build big data centers here, says a report released Friday by the Illinois Chamber of Commerce Foundation.=

    Because the Chamber hates capitalism?


  16. - Colin O'Scopy - Wednesday, Jan 30, 19 @ 1:23 pm:

    @njt Then it really begs the question: “what are we getting in exchange for the subsidy?”


  17. - Anonymous - Wednesday, Jan 30, 19 @ 1:29 pm:

    There is a massive flaw with the logic of the article. The companies that would traditionally go into one of these collocation data centers are almost all going to the cloud. The only companies building datacenters are those who host/create that cloud. These companies have very specialized needs.

    Here is Google’s: https://www.youtube.com/watch?v=zRwPSFpLX8I

    Here is Microsoft’s: https://www.youtube.com/watch?v=fDXPEVJMXsA

    As you can see, both of these happen to use a container model - when they need capacity, they pull in a semi truck with a container, drop it, connect it to data, power and cooling and leave it. The current datacenters around Chicago are designed so you bring in racks and your own equipment. Not going to fly. Also - the power and cooling density is very different for the two types of centers.

    Basically - the ones we have, will slowly start becoming bigger and bigger ghost towns. The only way these will get used by the big players is when they close and the players decided they should buy the entire facility and upgrade it to their needs. So don’t waste tax incentives etc.a


  18. - DuPage Saint - Wednesday, Jan 30, 19 @ 1:50 pm:

    Sure give them money. I am a Republican and many Republicans want poor to pull themselves up by themselves. How about letting business sink or swim in their own dime? No subsidies no TIFF. I wish towns counties and states could agree on this. bet Wisconsin might ageee now


  19. - City Zen - Wednesday, Jan 30, 19 @ 2:01 pm:

    Microsoft Azure continues to invest big in Iowa:

    https://www.desmoinesregister.com/story/tech/2016/07/22/new-west-des-moines-data-center-gets-475m-incentives/87406160/


  20. - Ares - Wednesday, Jan 30, 19 @ 2:14 pm:

    Enough of the subsidies. Take the $$$ and invest in STEM education back home, from K-college. Will get much more bang for the buck.


  21. - njt - Wednesday, Jan 30, 19 @ 2:56 pm:

    ===Microsoft Azure continues===

    Article from 2016.

    ===Project Osmium
    First announced: 2016
    Total investment: $1.5 billion to $2.5 billion
    State incentives: $4.75 million for first phase
    Job obligations: 57 for first phase; 133 jobs total expected===

    So $36,000 per job, not great.


  22. - Joe blow - Wednesday, Jan 30, 19 @ 3:29 pm:

    Gee let’s give them a hand up not a hand out


  23. - OneMan - Wednesday, Jan 30, 19 @ 3:32 pm:

    These facilities are not huge continuing job creators.

    The number of ‘hands’ needed to maintain and manage hardware (and software) continues to go down over time. in my own career the number of systems I deal with has gone up significantly over time. So if anything you an expect to need fewer hands over time and unless it is a very specific functionality (like trading) the location of a data center isn’t a huge deal. Half the speed of light is still half the speed of light and the lag isn’t that much different between Lisle and Ames Iowa.


  24. - City Zen - Wednesday, Jan 30, 19 @ 3:41 pm:

    ==So $36,000 per job, not great.==

    $83,000 per job. You’re mixing phases.


  25. - Back to the Future - Wednesday, Jan 30, 19 @ 4:20 pm:

    I am in my local chamber of commerce . Of course just one persons opinion, this guy needs to go. He has been an embarrassment to small business owners in Illinois for a long time.


  26. - Been There - Wednesday, Jan 30, 19 @ 9:28 pm:

    ===So if anything you an expect to need fewer hands over time and unless it is a very specific functionality (like trading) the location of a data center isn’t a huge deal. Half the speed of light is still half the speed of light and the lag isn’t that much different between Lisle and Ames Iowa. ====
    Not to change the subject but for all the pols that keep wanting to tax LaSalle Street this is what Terry Duffy of the Merc has said will happen to their servers if they do impose a tax.


  27. - City Zen - Thursday, Jan 31, 19 @ 8:17 am:

    ==for all the pols that keep wanting to tax LaSalle Street this is what Terry Duffy of the Merc has said will happen to their servers if they do impose a tax.==

    I never understood how Chicago could implement this tax when CME clears its transactions in a data center in Aurora.


Sorry, comments for this post are now closed.


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