Giant commercial properties built in the early 20th century to handle the business of an entire country — to bake its bread or to print its mail-order catalogs — don’t often age well. They meet their end close to a century later with a swing of the wrecking ball. Some, spared that fate, languish in blight, abandoned testaments to market forces long having evolved.
The industrial midwest has plenty of of these empty shells shadowing communities that once depended upon them for economic vitality. But in Chicago, the local stretch of the rust belt that girds North America is being reshaped by new market forces and the fiber optic cable they travel upon. The next industrial midwest is rising in the old one’s walls: data center retrofits.
Setting The Tone
The terrific development and history blog Chicago Patterns has been taking a long, photography-rich look at the city’s recent evolutions in its industrialized property base. To get a sense of the potential impact of gut rehabs on such venerable industrial inventory as Schulze Bakery building, definitely check out John Morris’s coverage at this excellent blog.
A keystone of South Side data center development is the South Loop’s 350 East Cermak. An eye-popping 1.1 million sq. ft. project at the very edge of the central business district, owned by Digital Realty Trust, this new industrial center in an old wrapper is the second-largest consumer of electrical power, trailing only O’Hare Airport in kilowatt hours.
Once used to house the printing presses for the R. R. Donnelly company – the name that produced the Sears mail-order catalog to a growing nation – the facility still produces revenue by pushing words from point A to point B. It’s just that this time, no trees are harmed in the process.
The essential railroad links that drove Chicago’s commercial 19th and 20th century growth took advantage of the city’s geography and made it the hub for the United States. Geography again looms large in Chicago’s 21st century renaissance, and for similar reasons of geography. Where material traveled on rail through the town, data now travels on fiber optic cable through Chicago, the metro area that boasts the nation’s third-largest fiber optic capacity behind New York and Washington, DC.
That capacity means a competitive advantage: customers who pick a central location to host their data — their websites, their customer databases, their remote storage, their videos — enjoy the greatest speed of access. This matters to everybody who clicks a mouse and waits for the page to load or refresh.
Not Especially Bubbly
With a whopping $550 million slated for near South Side data center projects, it’s instructive to note that capital constraints felt by many (if not most) commercial real estate sectors and specialties and locales seem to have far less effect upon Chicago’s data center development. Some of this is undoubtedly chalked up to the psychology behind internet investment, which enjoys — perhaps more than any other broad type of investment — a benefit of the doubt and inclination toward enthusiasm. The wider trend is approaching its third decade and has already outpaced its history. Its lowest point – the 1999 internet stock bubble – is a distant memory more associated with specious branding plays and Super Bowl tv spending profligacy.
Today’s data center expansions and gut rehabs, on the other hand, have far more to do with infrastructure and logistics, making it a race to match capital to the raw demand of wireless services and devices. Pets.com and sock puppets on TV have nothing to do with it this time around. This time, it’s actual business.