Asian investors grow desperate for data centres

Investors want to invest in a part of the property sector directly benefiting from rising e-commerce and cloud computing. But finding assets is difficult, and prices are rising.
Asian investors grow desperate for data centres

Data centres, a relatively niche investment just not so long ago, have become so popular – and expensive – that Asian investors are struggling to find available assets.

The impact of Covid-19 has accelerated an ongoing boom in e-commerce plus cloud and related technology, both of which rely on data centres to function. Global data centre traffic more than quadrupled between 2015 and 2020, according to the International Energy Agency, and the need of swathes of the global workforce to work from home this year has caused a surge in video-conferencing and other internet-based services.

In the first three months of 2020 internet traffic increased by a quarter in many US cities, according to American web infrastructure company Cloudfare.

According to a CBRE report published in June, 30% of Asian investor respondents said they intend to invest in data centres, up from 18% in 2019. However, thanks to regulatory restrictions and a scarcity of investable stock, data centres accounted for just 1.5% of total regional industrial real estate investment volume between 2015 and 2019, the report said.

Asian investors allocated $546 million to data centre real estate deals in the first four months of this year, versus $18 million during the same period a year ago, according to Real Capital Analytics (RCA). By contrast, allocations to offices and retail respectively fell from $9.9 billion and $3 billion, to $6 billion and $876 million.

Total investments into data centres by Asian investors in 2019 stood at $1.2 billion last year, versus $728 million in 2018. Cushman & Wakefield estimates that over $100 billion flowed into global data sector property in the 10 years to the start of 2020.

Moreover, there has been a surge in manager searches by Asian investors for mandates in the sector, said Amir Saleem, a director at investment consultancy bfinance in London.

“Investors have identified data centres as a sector for co-investments. And there have been increased institutional searches for infrastructure funds targeting data centres,” he told AsianInvestor, adding that in Korea local financial institutions like banks would often syndicate deals to end-investors. 

Saleem said he could not provide specific numbers of searches conducted.

Finding assets in Asia is not easy. Brookfield Asset Management owns a total of 51 data centres worldwide, including large businesses in Australia and Brazil. But it has yet to purchase anything in Asia.

“We haven’t found anything that matches our investment criteria and ability to execute,” said Udhay Mathialagan, a managing director in Brookfield’s Infrastructure Group in Sydney who oversees investments in Asia Pacific data infrastructure. 

Udhay Mathialagan,

Partly it’s a problem of demand and supply. Competition for data centre deals is increasing because availability in Asia is limited, said Christina Gaw, head of capital markets at Gaw Capital, a Hong Kong-based real estate private equity firm.

“Due to the expertise required in operating data centres, investors also need to work with strong operating partners. The sector in Asia has not grown to a point that there are many platform portfolios readily available,” she said. She was referring to the practice of a collection of assets being sold as part of a single deal.

Gaw Capital is focusing its search for data centre assets on Southeast Asia and on individual transactions.


The long construction times associated with data centres will further limit availability. Hyperscale centres, the largest such facilities, typically take around three years to build.

“There is generally a lack of product available for purchase in Asia Pacific compared to the US or Emea [Europe, the Middle East and Africa],” said Rohit Hemnani, Asia Pacific chief operating officer and head of alternatives in property broker JLL’s capital markets division. “It also takes time to build data centres.”

Rohit Hemnani, JLL

This has been exacerbated by the reluctance of current owners to sell, said David Green-Morgan, managing director for Asia Pacific at Real Capital Analytics.

The lack of available assets globally has caused the value of data centre assets to spike. The five largest US data centre real estate investment trusts (Reits) tracked by Nareit, the Reit industry body, rose by 19.2% for the year to the end of June. The US office Reit index was down 24.5% over the same period.

At the end of the second quarter the number of worldwide hyperscale data centres increased to 541, and another 176 are being planned or built, said Synergy Research Group.

While the US still accounts for almost 40% of the major cloud and internet data centre sites, much of the coming growth will happen in China. At the start of last year, data centres under construction in the country outnumbered those in operation by nearly three to one according to DBS.

This is supporting a desire by investors to invest in China. A survey by the Asian Association for Investors in Non-Listed Real Estate Vehicles in July found 75% of respondents plan to invest more in China and South Korea, with 53% looking to raise their weighting to the former this year.

Hemnani has few worries of an eventual supply glut, given the long construction times. Similarly, Brookfield’s Mathialagan sees years of opportunity ahead: the company will make steady allocations even if prices climb.

“We are playing for the long-term, so we are not rushing into things. If the growth rates are there, [the deals] do warrant high [prices].”

Brookfield is focusing its regional sourcing efforts on Sydney, Singapore, Hong Kong and Tokyo.

No manager would estimate the yields they are targeting for investments in Asia. However, yields for prime data centre locations within Europe are between 5% and 7%, according to Lydia Brissy, director European research for Savills in Paris. L&G Property in London estimates the best European locations will yield 9%.

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