Inside Chicago’s Exploding Data Center Market: Legal, Economic, and Regulatory Shifts to Watch
Data Centers and Economic Development in the Chicago Region: Legal and Economic Considerations
The Chicago metropolitan area is experiencing unprecedented growth in data center development, positioning the region as one of the nation’s premier markets for digital infrastructure. Chicago is now ranked as the 7th largest data center market in North America with approximately 106 data centers and 982 MW of commissioned power, though some sources like Cushman & Wakefield rank it as the number 2 overall data center market worldwide when factoring in cloud ecosystem, connectivity, available land, incentives, and pipeline. As communities across Illinois navigate the complex legal, regulatory, and economic landscape surrounding these facilities, understanding the multifaceted implications of data center development has become essential for municipalities, developers, and investors alike.
The Economic Foundation of Digital Infrastructure
Data centers have emerged as critical economic engines, particularly for communities seeking diversification and sustainable tax revenue. The recent T5 Data Centers project in Grayslake, Illinois, exemplifies this trend. With plans for over 10 million square feet across 18–20 buildings and 1.55 gigawatts of secured power, the development represents potentially the largest single project in Lake County’s history. The facility is projected to create 1,500 permanent positions and hundreds of construction jobs, with investments ranging from $8.5 billion to $18 billion.
The fiscal impact of such projects extends far beyond direct employment. Data centers typically generate substantial property tax revenue while placing minimal demands on local infrastructure compared to other industrial uses. The economic value stems not only from the facilities themselves but from the digital ecosystems they enable, supporting cloud services, artificial intelligence applications, financial systems, and healthcare networks that drive regional competitiveness.
The Chicago market’s supply has expanded rapidly, with inventory growing by 20.6% year-over-year between Q1 2022 and Q1 2023. The market offers a mix of retail colocation sites, wholesale multi-tenant centers, and large cloud/hyperscale campuses distributed across two main clusters: Downtown Chicago, where facilities cater to finance and network-centric users requiring low latency, and the suburban cluster (primarily the western and northwestern suburbs) around areas like Elk Grove Village, Franklin Park, Northlake, Mount Prospect, and Aurora, where cheaper land and easy access to power have attracted major operators including Microsoft in Hoffman Estates, CyrusOne in Aurora, Meta’s 2.3 million square foot campus in DeKalb, and Aligned in Northlake. With approximately 982 MW of commissioned power and ranking as the 7th largest market in North America, the region has seen record absorption levels, 368 MW in the first half of 2025 alone, making Chicago the number three market in North America for absorption, behind Northern Virginia’s 647 MW and Dallas’s 575 MW. Chicago captured 385+ MW of absorption in 2023, with strong momentum continuing through 2024 and 2025.
Federal Policy and Land Use Opportunities
Recent federal initiatives have added another dimension to data center development. A 2025 executive order titled “Accelerating Federal Permitting of Data Center Infrastructure” directs agencies to streamline environmental reviews and identify suitable federal lands for development. The Department of Energy has already selected sites, including the Idaho National Laboratory and Oak Ridge Reservation, for private-sector data center partnerships.
In addition, the White House has also announced a forthcoming executive order aimed at addressing the growing patchwork of state-level artificial intelligence regulations. The administration plans to establish a more unified federal framework for AI oversight, responding to industry concerns that conflicting state rules create compliance challenges for cloud, hyperscale, and AI-driven data center operators. This national approach is intended to streamline regulatory expectations, reduce legal fragmentation across states, and provide clearer guidance for companies whose data centers support large-scale AI and machine-learning workloads. The expected order may also include mechanisms for challenging or preempting certain state regulations, signaling a shift toward stronger federal leadership in AI governance.
Navigating Infrastructure Challenges
Despite Chicago’s strong market fundamentals, developers face several key challenges. Power infrastructure constraints represent a major concern, with large power deliveries taking 3–5 years in the Chicago area due to the need for utility upgrades. Many developers compete for power from the same ComEd substations or transmission lines, and certain areas such as the O’Hare corridor, including Northlake, Franklin Park, and Elk Grove Village, are approaching capacity on certain substations. Solutions include developers partnering with utilities or building their own substations and dedicating them to the grid. The positive side is that Illinois is a strong power generation state with a mix of nuclear, wind, solar, and other energy forms, with the state targeting 40% renewable energy generation by 2030. Any location that can assemble sizable parcels with good infrastructure becomes highly attractive. From a legal perspective, these infrastructure constraints require sophisticated structuring of power purchase agreements, utility coordination agreements, and development timelines that account for extended lead times.
Looking Forward
As data center development continues to accelerate across the Chicago region and nationwide, legal practitioners must stay abreast of evolving regulations, market dynamics, and technological innovations. The intersection of federal industrial policy, state incentive programs, local land use regulation, and environmental law creates a complex framework requiring multidisciplinary expertise.
For municipalities, the challenge lies in crafting policies that attract investment while protecting community interests and natural resources. For developers, success depends on navigating regulatory requirements, securing adequate power and connectivity, and building genuine partnerships with host communities. For investors, understanding the legal and regulatory landscape is essential to assessing risk and opportunity in this rapidly evolving sector.