Will a data center replace this suburban office building?

Data center developer Aligned was the buyer of an office building in Chicago’s northwest suburbs near O’Hare International Airport, revealing that the Class B property is poised for a new use as industrial developers target underutilized office properties.

The Texas-based data center builder paid about $29.1 million to acquire the 177,000-square-foot 50 Northwest Point Boulevard in Elk Grove Village from Franklin Street Properties, Cook County public records show. Massachusetts-based Franklin Street announced the sale last month but didn’t disclose the buyer.

It’s not clear whether Aligned will convert the 2000s-era property, which sits on a 10-acre lot, into a data center – a facility that houses back-end IT systems such as mainframes, servers and databases for companies – or tear it down entirely and construct a new building. The developer didn’t return a request for comment. The firm already has a 520,000-square-foot project in Northlake, according to its website.

If the firm does remove the office use, the plan falls in line with a trend of suburban offices being converted to more industrial uses amid a record-high office vacancy rate in the Chicago suburbs. Industrial developer Dermody Properties bought Glenview’s Allstate corporate campus for $232 million last fall, with plans to transform the property into warehouses.

And Bridge Industrial has a deal rumored to be worth around $100 million to buy Baxter International’s 10-building, 646,000-square-foot office campus in Deerfield in order to convert it into a logistics park.

While suburban office landlords are struggling with record-high vacancy in the sector of 29 percent as of last month, any such data center project arising from Aligned’s purchase in Elk Grove would add more supply to a market that tightened last year, according to an August report from JLL.

The midyear report, the most recent analysis available from the brokerage, predicted pricing for Chicagoland data centers to spike in 2023 due to much of the data center space across the suburbs already being spoken for, but to even out in 2024 with several projects being delivered.

Tech giants Microsoft and Meta have put millions into expanding their data center operations in the Chicago area in recent months. The Redmond, Washington-based software company paid $41.5 million for a 30-acre speculative industrial site in Hoffman Estates in February, while the Facebook parent put $1 billion into more than doubling the size of a DeKalb data center to 2.4 million square feet last spring.

Developer Prime Data Centers also has a $1 billion project underway in Elk Grove Village, and a data center from Metro Edge Development Partners in the Illinois Medical District in the city of Chicago is forthcoming. 

It’s unclear how long Aligned may have to wait out leases within the Elk Grove building in order to pursue redevelopment. The office building was fully leased to Citicorp Credit Services and software developer NCS Pearson as of the end of 2022, according to Franklin Street’s SEC filings, but it’s unknown when those leases end. Citicorp has been a major tenant in the building since 2006.