Institutional investors scout for new APAC data centre plays
With few opportunities to purchase data centres or development opportunities in established Asia Pacific markets, such as Japan, investors are looking further afield.
The shortage of available data centre deals means that, unlike Europe and the US, investors needed to be more creative and flexible to gain a foothold in the market, pursuing development opportunities as well as widening their geographical scope, despite the greater risk, according to Tom Fillmore, executive director, data centres, capital markets, for CBRE in Asia Pacific.
CBRE
“It remains challenging to find available land for either green or brownfield development that has access to power. If you can find a piece of land that has power, and its within fibre distance, you are halfway there,” he said.
“Investors may look at Japan as a market as more developed with more competition than a market such as Vietnam where there has been less penetration. The most apt analogy would be to skate to where the puck is going as opposed to skating where the puck currently is,” he added.
Still,different geographies are sometimes constrained by limitations on where investors are allowed to invest, Fillmore said.
CLOUD COMPETITION
Further pressure on investors comes from the changing structure of deal sourcing in the region, with the largest cloud operators, Amazon, Microsoft and Google increasingly developing sites directly, or partnering with local developers.
With operators so flush with cash, there is little space for investors unless they can bring a local network or contacts.
“Operators not necessarily courting [my] investors for their money, but rather for their ability to open doors, such as providing access to deals and the benefits of local contacts to secure government approvals and power supply, in exchange for equity return,” a laywer in Korea who advises local investors and asset managers, told AsianInvestor. He asked not to be named.
Fillmore said investors faced additional challenges in Korea and Japan, where tight zoning or permitting regulations created uncertainty over whether development opportunities will get the required permissions.
Pressure is also coming from growing competition from developers of industrial property, who are expanding into the data centre sector to make use of their contacts with land sellers across the region.
“Companies like GLP, Prologis and ESR, are forming their own data centre operations,” said Fillmore.
POWER SHORTAGE
“Lack of power availability is a key emerging challenge facing operators in some Asia-Pacific markets,” said Tim Lin, head of Asia-Pacific data centre consulting at CBRE.
Tokyo, Sydney, Singapore and Hong Kong are the largest markets for data centres in APAC, measured by computing capacity, according to the advisor.
CBRE
Singapore, the world’s most power-constrained market, is facing some of the greatest demand from end users.
CBRE estimates it has less than 4MW of available capacity, while vacancy rates stand at a record low of 2%, comparable to Tokyo and Hong Kong.
Inventory in Singapore remains constrained with few developments in progress after a four-year government-imposed moratorium, which ended last summer.
The dwindling opportunity set for investors is reflected in the fall of investment into the sector more widely.
Total APAC data centre investment volume in the first nine months of 2023 was $976 million, down from $1.38 billion in the same period in 2022, according to CBRE.
However, such is the strength of demand for the sector from investors, that Fillmore estimates that major institutional investors will grow their allocations to completed data centres to 25% of their total allocation to the sector, by 2027, up from a level he estimates to be 10% today.