Skybox and Prologis Show How Investors Are Betting on More Growth in Data Center Demand

Texas Company Seeks To Widen National Footprint With World’s Largest Logistics Owner

Skybox Datacenters is retrofitting an abandoned building in Elk Grove Village, Illinois, into a 30-megawatt data center. (Skybox)

By Jennifer Waters
CoStar News

March 23, 2021 | 3:36 P.M.

To get a sense of how companies are trying to meet the rapidly rising demand for cloud computing, take a look at Skybox Datacenters teaming up with deep-pocketed partner Prologis, the logistics giant with a huge footprint, to retrofit buildings around the United States.

The arrangement is poised to add more data centers to the burgeoning sector, staking ground first in Elk Grove Village, Illinois, near infrastructure-rich O’Hare International Airport, and it marks the first for 8-year-old Skybox outside Texas. Prologis, the world's largest industrial property owner, is including the Elk Grove Village building as part of its undisclosed investment with a promise of more to come. With some 984 million square feet of logistics space in 19 countries, Prologis offers Skybox the chance to accelerate its growth.

When it comes to data center space, “we’ve seen a tremendous growth across the country in last three years and COVID really accelerated digital transformation for cloud company clients and enterprises that manage their own infrastructure," Haynes Strader, chief development officer for Dallas-based Skybox, said in an interview. “Chicago is really a hotbed for that because of its central location."

Data center demand is on the rise, driven by a pandemic that pushed brick-and-mortar shoppers online and the nation’s vast workforce to conduct their business from home, putting pressure on corporate and consumer-facing technology systems. Total inventory in primary markets grew nearly 6% in the second half of last year, according to real estate firm CBRE, as companies shifted focus and dollars on their digital infrastructures to keep workers and customers in touch. For the year, inventory in primary markets surged 11.3% to 2.8 gigawatts.

And that’s only expected to expand as demand exceeds supply, according to a CBRE study. “A need for highly connected sites with cloud on-ramps is driving new demand, some of it from enterprise data centers that lack this connectivity and flexibility,” CBRE said.

“Substantial preleasing indicates increased leasing volume in 2021, largely dominated by hyperscalers and cloud service providers,” according to the report.

Prologis is contributing a roughly 190,000-square-foot vacant warehouse at 800 Devon Ave. as part of a joint venture with Skybox to redevelop it into a speculative data center.

When completed by November, the precast building will transform into a 30-megawatt data center for large computer systems. To do so, Skybox is “hardening the building to meet resiliency and redundancy” standards, said Strader.

Terms of the deal were not revealed, but the Elk Grove Village City Council said the project would cost $13.7 million when it approved funding. Illinois began offering attractive tax incentives to data center providers in 2019; they have been a growth driver for the sector throughout the state and particularly in the greater Chicago area.

Structural reinforcements include a power generator, a more resilient roof that will better withstand weather events and support heavier hanging loads inside the facility, and an 8-foot, crash-rated security fence. Extensive interior renovations including conference rooms and a marketing center are expected to adapt the 16-year-old building to be fully flexible to accommodate any kind of data center, Strader said.

“It will be turnkey for anything from four data halls to a large data hall to six smaller data halls,” he said. “Our ability to provide a wide array of flex options is unique in that market.”

Skybox Chicago is expected to be completed by January. (Skybox)

Elk Grove Village, about 25 miles from downtown Chicago and a strong stone’s throw from O’Hare, has become popular among tech companies to place servers, wires and related equipment. Some 14 providers and 16 data centers dot Elk Grove Village, including the $1 billion Elk Grove Technology Park, an 85-acre parcel that’s been under development since 2018.

Microsoft is one of the latest tech giants to build there, recently breaking ground on a 37-acre plot that could hold three data centers totaling 400,000 square feet, much of it slated for Azure, the company’s cloud computing service.

Last year, Atlanta-based T5 Data Centers took over a 164,000-square-foot shell data center space at the Tech Park.

“A number of large tech firms and financial services firms have large footprints in Elk Grove,” Strader said.