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How Chicago Ascended the Tech Market

When you think of jazz, architecture, Al Capone, and deep-dish pizza, the city of Chicago likely comes to mind. Chicago is renowned for its rich and diverse cultural history. But as the ninth oldest metropolitan area in the United States, the city of Chicago has more than just centuries of culture, but centuries of innovation.1 From expanding settlements East to West in the 1800s, to installing the first optical telephone communication system by AT&T in 1977, Chicago has been a key city for technological change. Over centuries, Chicago has been marked by resilience, enduring the Great Chicago Fire, and fierce economic competition with New York City. Today, Chicago continues to climb the tech charts and is listed as one of the top datacenter markets in the nation. To appreciate the Chicago technology market as we know it, we must look back. The genesis of these advancements, and Chicago itself, all began with one man on the banks of Lake Michigan.

Settling Chicago

In 1779, a Haitian man by the name of Jean Baptist Point Du Sable, settled on the banks of Lake Michigan, an area regarded as modern-day Chicago. Point Du Sable, known as the “Founder of Chicago,” created and maintained a trading post in the region until 1800. Point Du Sable’s knowledge of Spanish, French, English and several Native American dialects made his trading capabilities exceptionally successful. His communication skills married with the local waterways made the Chicago area a proliferating hub for trade among various people groups.2, 3, 4

Waterways for Trade

In addition to ease of communication for trade, Point Du Sable’s post was recognized as a critical trading point because of its expansive water system connecting various travelers and tradesmen from East to West. In 1825, the Erie Canal opened, creating a direct water route from New York City to the Midwest. This route triggered a mass migration of people and enabled the development of agriculture and commercial industry through the western frontier.5 Further expanding the region, the development of the Michigan Canal began, a project funded by the sale of the surrounding land by the Federal government. Workers, laborers and speculative entrepreneurs flocked to the area, increasing the population and incorporating the city of Chicago in 1837.4

Waterways to Railroads

In 1848, the same year the Michigan Canal was completed, the first railroad tracks were laid in Chicago. The Galena & Chicago Union rail line soon attracted many other railroads to Chicago, connecting the city to new markets like Detroit, Cleveland, Cincinnati, New Orleans, St. Louis, Kansas City, Omaha, and St. Paul.6 The sheer magnitude of the railroad industry spurred the development of many related economic developments such as rail yards, trucking companies, and warehouses. The hospitality industry boomed in Chicago as well with necessity for new hotels, restaurants and taxis to host travelers.4, 7

Financial Center

Chicago’s early history was not limited to manufacturing and agriculture. In 1848, the Chicago Board of Trade was formed to bring order to the agriculture market. The Board of Trade established Chicago as a financial center, creating a liquid market for agricultural commodities, and expanding in the later 21st century to include meat products, lumber products, precious metals and government financial instruments such as Government National Mortgage Association certificates, called GNMAs, and US treasury bonds.8

Fire in Chicago

The “Great Chicago Fire” of 1871 was one of the most infamous infernos in US history, lasting for days and destroying massive amounts of buildings and infrastructure. City planners essentially rebuilt Chicago over again, which is why Chicago is referred to as the “Second City”: the damage necessitated complete reconstruction from scratch. As traumatic and heart breaking as the “Great Fire” was, Chicago was rebuilt with better materials and intentional design, a brand new “Second City” emerged from the ashes, with strength, resiliency and updated urban planning, ready for new businesses to emerge.9

Telecommunications Begin in Chicago

A lot of advancements transpired in Chicago in 1848. Along with completion of the Michigan Canal, the first railroad tracks were laid, the Board of Trade was inaugurated, and the telegraph was also introduced in Chicago. A few years later, the connection was made for a nationwide long distance telephone network by American Telephone and Telegraph Company, today known as AT&T, which reached Chicago in 1892. The founding of the Independent Telephone Association of America, today USTelecom in Chicago, allowed next day publishing of the events and happenings of Chicago’s explosive economic development.10, 11, 12 The nation was able to learn about the opportunities that the bustling city of Chicago provided. The rapidly increasing employment opportunities as the city’s industrial development expanded caused a massive influx in worked to move in, tripling the city’s population from one million in 1890 to three million by 1923. This migration pushed both economic and demographic growth outward, populating communities along the rail and river lines.4, 13

Chicago Airports Open

The city of Chicago became wealthier through its transportation and industrial expansion, investing in education, healthcare, sports, and entertainment.7 As Chicago grew as a manufacturing, trade, cultural and financial hub of the Midwest, the city began to expand into suburbs. To keep up with traveling visitors in the city, the development of expressways and the Midway Airport in the 1920’s as well as O’Hare International Airport following World War II helped accommodate the sheer amount traffic the city experienced.4, 14

Connectivity Begins

In 1977, the first ever optical telephone communication system was installed under downtown Chicago by AT&T.15 This new system was comprised of optical fibers that transmitted information 65,000 times faster than the traditional copper wires. The United States government was using optical fibers on a smaller scale to link networks of computers as early as 1975, however, this installation in Chicago was the first of its kind for widescale communication via telephone.16, 17 Not only did this installation proliferate telephone usage across the nation, but it put Chicago on the map for as a hub for connectivity.

Headquarters in Chicago

Many companies situated themselves in Chicago as a mid-point for travel to both coasts, moving towards the suburbs for easier access to both airports.4 From 1960- 1990, many high tech research facilities and offices moved to the greater Chicago area, taking advantage of the available land, ease of access and transportation. Beginning with Northern Illinois Gas, today known as Nicor, followed by Lucent Technologies, Fermilab, the National Accelerator Laboratory, Amoco, and Nalco Chemical Company, movement to the suburbs spurred an influx of various organizations as the surrounding infrastructure, talent, and amenities became increasingly attractive to relocating tech companies.18

Steady Tech Growth

While Silicon Valley and New York remained technology titans, Chicago continued to grow a sturdy ecosystem that would enable tech developments to thrive. Established companies laid a foundation with industry professionals, the educational institutions in the area provided an educated and eager technical work force, combined with attractive cost of living and nation wide accessibility – companies began to flock to the area.19, 20 Chicago became a “net importer” of startups and other companies, as mergers and acquisitions brought more companies to the city, than companies that left.21

Chicago Startups

By 2010, Chicago startups such as Groupon, Braintree, Trunk Club, and GrubHub had their national rollouts and were capturing more attention from venture capitalists, accelerators and incubators alike, bringing in more funding and interest for the region’s tech expansion. Additionally, founders of past startups, local universities, and the local Chicago government have created entities that invest back into the entrepreneurs and startups in the Chicago area. For example, 1871, named after the year Chicago started rebuilding after the Great Chicago Fire, is a non-profit digital startup incubator located in Chicago with purpose to provide a community for various innovators and startups. To retain local talent, universities such as the Illinois Institute of Technology, DePaul University, and University of Chicago, have developed various educational programs to increase necessary start up talent for entrepreneurial, business, and engineering degrees.19

Chicago as a Data Center Market

Today, the Chicago market continues to prove to be a burgeoning data center hub. Chicago is listed as #4 on Cushman & Wakefield’s “The Top Ten”, an annual list of data center market rankings for its “sizable incentives... [with] plenty of development in the pipeline and lower power costs than most large data center markets.” Chicago was also listed as a top market for categories such as “Fiber Connectivity” and “Cloud Availability”.22 According to JLL’s Global Data Center Outlook, Chicago datacenter absorption increased by 79 MW from 2021 to 2022. JLL expects “2023 [to] result in a complete sell-out of spaces above 1 MW in the suburbs [of Chicago],” “ If the space and power is available, it is getting leased.” JLL foresees a challenging outlook for users citing “limited supply, [and] competition among tenants, especially larger users.”23

Through centuries, Chicago continues to prove time and again that it is a resilient city. As Chicago continues to find creative ways to create a thriving business and technology ecosystem, in more recent years, the data center market began booming. With fiber connectivity, room for growth and limited power and land availability elsewhere, larger users are especially looking to call the “Second City” their hyperscale home. Chicago’s rich history as a burgeoning economic center and technological hub has only empowered its placement as one of the fastest growing data center markets in the world, and a market where Skybox will continue to develop new data center facilities.

Citations

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