Asia Pacific data centre investment to hit new record this year

The data centre market across the Asia Pacific region is expected to see another record year in terms of investment, with an estimated US$1.8 billion in direct investments already transacted in the first half of 2021.

This is according to new research by real estate services and investment firm CBRE, which said that data centre transaction volumes already hit a five-year high last year, due to accelerated digitalisation as a result of the pandemic.  

Now, with data centre investment in the first six months of 2021 reaching 80 per cent of last year’s full-year investment, it is expected that full-year data centre investment volume will surpass last year’s benchmark as further major transactions are due to close in the second half of the year.

CBRE claims that data centre demand in the Asia Pacific region is being driven by data security and sovereignty concerns, as governments tighten requirements around data storage. A big driver in these areas has been the introduction of China’s Data Security Law, effective from 1 September, which has prompted corporates to construct facilities to store all locally generated data.  

Indeed, mainland China has been a hotbed of data centre investment, accounting for the highest proportion of investment in the entire region, with several major deals in the country completed during the first six months.  

These deals included the acquisition of a 50 per cent stake in Songjiang Internet Data Centre in Shanghai by investment firm GLP and Chinese cloud and data centre firm GDS’s purchase of a data centre in Beijing from CITIC Group.

Meanwhile, hyperscale cloud providers also added to the expansion during the first half of 2021, with several major corporations signaling new facilities and availability zones in Mainland China and Hong Kong.

Fresh data centre opportunities remain

Although new data centres seem to be going up left, right and centre across the region, CBRE reckons that there are still plenty of opportunities for new data centre infrastructure developments to find customers.  

Specifically, CBRE said that opportunities remain in tier one markets across Asia Pacific, with total data centre net absorption in Tokyo, Sydney, Singapore and Hong Kong slowing to 70 megawatts (MW) in the first half of 2021 from 123MW in the second half of 2020.  

Overall vacancy in these markets edged up to 14.6 per cent as of June 2021, up from 13.9 per cent in December 2020, the firm noted.  

At the same time, total colocation capacity in tier 1 markets across Asia Pacific stood at 1.876 gigawatts (GW) as of June 2021, up 5.4 per cent from December 2020, as more new projects are anticipated to come online in the second half of the year.  

Tokyo claims the largest pipeline among the four tier one Asia Pacific data centre markets over the next three years, the firm said.  

“What we’re seeing now is a comfortable supply-demand situation as data centre operators maintain a healthy vacancy rate of up to around 20 per cent as a large buffer for expansion,” said Lim Chin Yee, senior director of Asia Pacific Data Centre Solutions at CBRE. “Operators only plan new developments when their existing assets are 60-70 per cent occupied.  

“A facility with unsold capacity of 10 per cent or less tends to be taken up by existing tenants rather than attracting new users,” she added.

CBRE stressed that the stabilised data centre supply is not currently available to meet demand, with limited asset availability in the region expected to somewhat temper direct data centre investments.  

“The main acquisition opportunities for investors will likely come from some of the biggest data centre owners in the region: telecommunications companies seeking to monetise their assets via sale and leaseback deals,” said Tom Fillmore, CBRE Asia Pacific data centre capital markets director.  

“While greenfield development is another possible entry route, this remains dominated by data centre operators building their portfolios.

“Due to the robust investor interest in this sector, we are also seeing participation through indirect channels such as partnering with operators, providing project financing, or through equity investments, such as Digital Edge’s acquisition of a majority stake in Indosat following the relaxation of foreign ownership restrictions,” he added.

Earlier this year, analyst firm Frost & Sullivan suggested that global investment in data centre infrastructure was expected to surge past US$26 billion by 2025, driven by rampant data creation and pent-up demand.

The analyst firm said that investments from technology and industrial firms in next-generation enterprise, cloud and colocation data centres will accelerate the growth of the global data centre infrastructure solutions (DCIS) market.