Institutions face Asia data centre shortage amid high demand

High demand and low supply are challenging large investors across the sector, and with financing costs relatively high, some are pulling out of deals altogether.
Institutions face Asia data centre shortage amid high demand

With demand high, supply low and prices still rising,institutional investors in APAC’s data centre market are finding themselves gazumped, or pulling out of deals in the face of rising financing costs.

“Those willing to sell [data centres] are few and far between. When they do, they are charging high valuations for existing data centres. There just hasn’t been much available and when there are opportunities, many deals have died,” Spencer Park, special counsel in the Seoul office of Milbank LLP and a member of the firm’s global corporate group, told AsianInvestor.

The law firm's clients include a number of Korean investors and asset managers.

He pointed to a deal he was working on for a US real estate fund to purchase a land plot in South Korea, before developing it with an international data centre operator. The deal collapsed when the seller received a significantly better offer.

 S pencer Park
Milbank LLP

“It sold for at least 30% more than the initially agreed price. If it had just been 5% or 10% more, I think [my client] could have handled it,” Park said.  

When deals do come up, many are priced too high for institutional investors, for whom rising interest rates have increased the pressure to generate returns.

Park pointed to a Hong Kong deal in which he is representing the buyer, about which he declined to give more details. The deal has been delayed by permit and other regulatory issues and Park now fears his client may have to pull out.

“With interest rates increasing this year, it will be harder to revive this deal,” he said.


Many institutional investors, especially those new to the market, favour stabilised assets: a completed data centre, ideally fully tenanted with a major cloud provider and a lease of around ten years, according to Tom Fillmore, executive director, data centres, capital markets, for CBRE in Asia Pacific.

“They tend to look for lower risk, income producing assets,” he said.

But there is very little supply of such deals: Fillmore estimates there have been just two large scale deals for Tier 4 data centres in APAC over the last year.

Tier 4 is the highest security and operating standard for data centres, required by large global companies and governments, with functionality to limit downtime from technical glitches to just a few minutes every year.

He added that the three largest cloud computing groups, Amazon, Microsoft and Google parent Alphabet – who collectively account for more than half of global data centre demand – were shaping the investment landscape in Asia, rather than investors.

Tom Filmore

“For investors it really is opportunistic: there is no overall theme. It’s really the prerogative of the big three [tenants],” Fillmore said.  


Partly to support the growth of generative artificial intelligence, the three companies spent $32 billion on capital expenditure on the three months to September 2023, more than 50% more than the same period in 2020, according to Bank of America.

The bank recently raised its 2023 estimate of cloud-related capex from no growth to 14%. The bank predicts spending will grow by 22%, to $116 billion in 2024.

As demand from these tenants for Asia Pacific locations increases, Park said the number of enquiries he was receiving from US operators seeking a toehold in the region is increasing.  

“That trend is continuing; they want to set up shop here in Asia but they need to find the right partners and identify the development opportunities. Whereas in the US they might identify the land and present it to investors, in Asia they rely on another partner or investor to source the land and/ or the power, in return for a larger equity stake,” he said.

According to data from consultancy Renub Research, APAC’s data centre market will grow at 12% per year over the next three years, reaching $48 billion by 2027.

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