Demolition crews are headed for one of the largest office complexes in Chicago’s suburbs, where a developer plans to replace Sears’ longtime headquarters with a 200-megawatt data center campus.
Compass Datacenters aims to begin work this year to raze 2.4 million square feet of corporate office space in Hoffman Estates, Illinois, and replace it with a campus of five cloud data storage buildings, each with 40 megawatts of power, according to Katy Hancock, vice president of community relations.
Hancock told CoStar News the developer is working with village officials on formal site plans, which will include taking down interconnected former Sears buildings and replacing them with data centers in several construction phases.
When the project starts, it will be one of the most dramatic examples of large office campuses being converted to or replaced by different types of real estate throughout the country.
One of the most common scenarios has been office-to-industrial conversions, including an ongoing redevelopment of the 232-acre former Allstate headquarters campus to a logistics campus in Glenview, Illinois.
Data center developers also have scoured top markets for unwanted office campuses, including a Japanese firm’s more than $27 million acquisition of two buildings west of Chicago’s O’Hare International Airport as part of its ongoing series of data storage buildings being developed within the Hamilton Lakes corporate campus in Itasca, Illinois.
The emergence of data centers on former corporate campuses is a sign of the times, with office demand at historically low levels since the onset of COVID-19 and the use of cloud data storage constantly on the rise.
Data centers have far fewer employees than office buildings, but they generate tax revenue from cities and suburbs losing office jobs.
“It will do great because demand is so high,” Jim Kerrigan, founder and managing partner of Chicago-based data center real estate advisory firm North American Data Centers, said of the Compass development. He is not involved in the project.
Site Plan Takes Shape
Dallas-based Compass, which paid $194 million for 194 acres of former buildings and land previously owned by Sears parent company Transformco, does not need a zoning change. The firm is working with village officials, who support the new use of the site, to agree upon specific details such as the layout of buildings, utilities and access points.
Compass’ plans to redevelop the campus at 3333 Beverly Road first emerged in July, and the firm completed the purchase in September. The developer took out a $367 million loan, far higher than the purchase price, from Citizens Bank, according to Cook County property records. Compass declined to tell CoStar News how much the five-building project is expected to cost.
“There’s a lot of site work that needs to take place before they can go vertical,” Hoffman Estates Village Manager Eric Palm said.
Because the property already includes a large amount of vacant land, it’s possible Compass could begin some construction before the demolition of the former Sears buildings is completed, Palm said.
Compass also is working with ComEd to bring large amounts of power to the site, which is needed to support facilities known for rows of servers and other equipment used to store cloud data to keep up with the ever-growing use of streaming services, online shopping and personal data such as photos.
One megawatt is roughly enough to power about 200 houses for a day.
Major users of data storage include Amazon, Google, Microsoft, Netflix and Facebook parent Meta. Such companies are potential tenants for Compass’ project, Kerrigan said, either for existing businesses or new needs related to artificial intelligence. New AI companies also have been gobbling up data storage, pushing up already high demand in the industry, he said.
“Since June, AI has really taken up a big part of data center space, and accommodating them is very important,” Kerrigan said. “AI requirements are significantly higher in terms of the power they need. It’s three times what was needed before.”
Data Center Demand Rising
Demand from long-established data behemoths and rising AI companies has increased competition for storage space, Kerrigan said. Big, single-tenant buildings known as hyperscale facilities, such as those developed by Compass throughout the world, have emerged in recent years to meet the needs of industry behemoths.
“These facilities are so big and require so much power that it makes things harder for smaller tenants to find space,” Kerrigan said.
Compass could quickly land commitments for its Chicago-area campus of data centers, Kerrigan said. Challenges include supply-chain bottlenecks on components, such as transformers and circuit breakers, and time needed for utilities to be added to a site, he said.
Chicago already is one of the largest markets for data centers. The largest is in Northern Virginia, where Compass has done bigger projects than the one planned near Chicago.
Compass has not publicly disclosed renderings of the Hoffman Estates project or details about the size of the five buildings. Data centers typically are measured by megawatts of power capacity rather than square footage.
The Sears campus redevelopment is the first in the Chicago area for Compass, which was acquired last year by Brookfield Infrastructure Partners and the Ontario Teachers’ Pension Fund.
Each building will be occupied by a single tenant, rather than being built as co-location buildings, Hancock said. Buildings will be constructed after tenants commit.
This story was updated March 5 to correct the size of Sears’ headquarters campus from 197 acres to 194 acres.