Asia Pacific to power the largest expansion of data centers globally

Data center investments will continue to grow in Asia Pacific, with investor interest rising in the emerging markets of China, India and Indonesia, according to JLL. With a growing demand for data storage, many companies are looking to rent a share of facilities, rather than own a center. This demand means that Asia Pacific revenue for shared or colocation data centers is expected to overtake the United States, rising to 40 percent of global share by 2020.

Driven by the region’s rapid urban population growth and adoption of e-commerce, Asia Pacific is experiencing a surge in data generated from various digital products and services. To cope with the amount of information, businesses are shifting toward storing their data on cloud services. Leading cloud providers such as Google, Amazon, Microsoft and Alibaba are competing to add cloud zones across the region, as Asia Pacific’s spend on public cloud services may hit $15 billion in 2018.

“As the cloud market matures, organizations need to establish their infrastructure capacity quickly in order to keep up,” said Bob Tan, director of alternatives, JLL Asia Pacific. “We’re seeing more investors looking to enter or increase their exposure to the data center sector as it offers diversification benefits and tends to have higher yields than traditional asset classes, such as office or retail.”

According to a new report by JLL, established investors and operators in Asia Pacific are setting their sights beyond the primary locations — Singapore, Hong Kong, Sydney and Tokyo.

Tan added, “Typically, investors have preferred these cities for their robust infrastructure, connectivity and relative ease of doing business. While these will remain as key markets, cities in China, India and Indonesia are emerging hotspots since they offer large population bases, high Internet penetration rates and social media activity. In recent years, data protection and cybersecurity legislation in these markets have forced users to switch to on-shore data centers, further stoking demand.”

Already the fastest growing data center market in the world, China’s need for colocation space continues to be anchored by the country’s rapid fintech growth, digital transformation and reliance on big data analytics, says the report. JLL predicts that tier-two Chinese cities will also draw interest due to the availability of land and power, lower operating costs, and improving network and support infrastructure.

Likewise, the report highlights that India’s massive population base, coupled with state-led initiatives, are likely to boost growth in the public cloud services market. The second-largest country by mobile Internet users, India’s Internet economy is projected to double by 2020. Digital India, a government campaign aimed at transforming the country into a digitally empowered economy, is also expected to push greater demand toward quality data center builds.

With the largest economy in Southeast Asia, Indonesia’s e-commerce market is expected to reach $60 billion in 2020, propelled by increasing Internet penetration and smartphone adoption. The report also reveals that local SMEs are increasingly looking to host in colocation facilities to reduce capital outlay and maintenance costs while operating at higher efficiencies as opposed to an on-site facility.

However, the report highlights that data centers are a unique asset class and market entry remains a challenge due to the lack of specialized expertise and knowledge in this sector.

“Given the nature of this business, many investors seek an experienced partner who possesses strong market understanding and can meet stringent service level obligations, as well as troubleshoot, maintain equipment and manage energy costs,” explained Tan. “As it is difficult to achieve these skillsets organically, most investors have found local partners through co-investments or joint ventures, while others have done so by acquiring local platforms as this allows them to scale in a shorter time.”

Other ways to gain exposure are build-to-suit data centers or sale-and-leaseback of existing facilities. In the first scenario, investors engage with the operator at the initial stages and develop a new build based on their specifications. In the second, investors acquire existing data centers directly from the operator or end-user but accord full operational control to them.

Looking ahead, Tan believes that data centers will continue to feature strongly on investors’ agendas. “We’re confident that prospects in Asia Pacific will continue to expand, with significant capital targeting the emerging markets. Given their large market size and potential, these destinations offer strong user demand and solid growth opportunities.”

For more information, download Data Centers: Powering Asia’s Digital Boom here.