New data from CBRE reveals a rapid surge in data demand, fuelled by continued growth in cloud computing and social media use, is driving increased investor interest in Asia Pacific data centres, with investment in the sector soaring to record levels in 2021.
Direct investment in the APAC data centre sector totalled US$4.8 billion in 2021—more than double the previous high of US$2.2 billion in 2020 and surpassing investment volumes for the past four years combined. Transaction volume and fundraising activity is expected to remain robust in 2022, with data centres ranking as the most popular alternative investment for the third consecutive year in CBRE’s recent survey of real estate investor intentions.
Interest in the sector has been underpinned by demand from hyperscale cloud providers for bigger facilities and multiple-site deployments. There were several large portfolio deals in APAC in H2 2021, including DigitalBridge-backed Vantage Data Centres’ purchase of PCCW’s data centre portfolio in Kuala Lumpur and Hong Kong, and the acquisition of five data centres in Japan by Digital Edge and Stonepeak Infrastructure.
“There is a considerable amount of capital looking to gain exposure to data centres as investors’ understanding of the sector matures. We have already seen strong growth in recent years and the pandemic-driven digitalisation trend has really supercharged interest in the sector. While opportunities will be limited relative to the demand that we are seeing, investors are pursuing the operational route by setting up dedicated platforms to secure higher returns,” said Tom Fillmore, Director of Asia Pacific Data Centre Capital Markets for CBRE.
The vacancy was stable at 14% for Asia Pacific’s Tier 1 markets of Greater Tokyo, Singapore, Sydney, and Hong Kong SAR, despite a record supply of 305MW in H2 2021. Almost 2,100MW of supply is slated to be completed by 2024, with Sydney constituting 40% of the pipeline. The new additions place Sydney on track to become the region’s largest colocation market by 2024 in terms of data centre capacity.
Key report findings:
The Greater Tokyo region is expected to see balanced demand supply despite the completion of 200MW of new supply in H2 2021. Operators seeking geographical diversification outside Greater Tokyo are eyeing Osaka and other regional cities, causing rents to hold steady.
Data centre rents in Singapore are expected to rise despite the lifting of the moratorium on new data centre construction from Q2 2022 which would ease medium-term availability. The 60MW per year cap on the total capacity for new applications means that Singapore’s supply pipeline will lag other Tier 1 markets in Asia-Pacific.
Sydney is set to have the largest development pipeline among Asia Pacific Tier 1 markets with newly announced mega projects. Hyperscale and wholesale rents are expected to come under pressure as new capacity, completed in phases, adds to growing vacancy.
Hong Kong rents and vacancies are expected to hold firm as corporate end-users and hyperscale cloud providers remain on the sidelines while near-term supply remains limited.
Hyperscalers driving DC growth
John Dinsdale, VP and chief analyst for Synergy Research Group, says cloud infrastructure services are a major driver of hyperscale investments and spending on IaaS and PaaS will continue to grow at a very rapid pace over the next ten years.
“Enterprises will continue to rapidly shift existing workloads onto public clouds, while the speed and flexibility of cloud services will continue to enable new businesses that generate new workloads. Beyond these cloud services, hyperscale operators will also see continued growth in other key markets – social networking, e-commerce, gaming, and SaaS,” he continued.
Edge-DC symbiotic growth prospects
Dinsdale says multiple industry drivers are creating a need to build out infrastructure that is physically nearer to the location of customers. He says this is evidenced by the buildout of local zones a good example being cloud providers building out local zones, additional local points of presence, additional cloud onramps via partners, and services based on hardware that is located on customer premises.
“This build-out is often driven by a need to provide a better quality of service/lower latency to customers, or to minimize issues around data sovereignty and privacy, but it is also being pushed by new services. For example, IoT-type services will continue to necessitate putting more computing power at the edge of cloud networks,” he continued.