Institutions take on higher risks with Asia data centre bets
Institutional investors are running higher risks as demand for data centre opportunities pushes them to Asia’s fringes.
“[When] too many investors jump on a theme in this way it makes less sense as an investment,” said Andrew Thompson, head of private equity, at KPMG Asia Pacific in Singapore, adding that general concerns about overbuild in capacity in key hubs in the region had driven investors to other locations.
Tom Fillmore, executive director, data centres, capital markets, for CBRE in Asia Pacific, in Singapore, said that user demands for data centre capacity in Asia’s emerging markets were more volatile and harder to predict.
That's a risk that investors did not face in more established markets and one they may not be prepared for.
In addition, country-specific risk differed significantly compared with more established markets, he noted.
“In emerging markets, it [is] a challenge to ascertain the customers' project growth trajectory and what locations they are looking to establish or grow into, along with the local challenges each market presents depending on the geography,” he said.
“The demand surge for data centres (DC) can be quite unpredictable as occupiers tend to value “just in time” capacity,” said Dedi Iskandar, head of CBRE data centre solutions, advisory and transaction services, Asia Pacific, at CBRE.
The risk of completed data centres failing to be occupied is significantly higher at Asia’s periphery, he added.
“The biggest challenge for new investors in the emerging markets is the possibility of not being able to secure a tenant. Investors often have to wait years to secure tenancy as it is dependent on market maturity as well as the market perception of operator/ developer track record and experience.
"Occupiers will usually only move in if the price is right, and only when they feel the market is ready for their services. Investors often have to wait years to secure tenancy as it is dependent on market maturity as well as the market perception of the operator/ developer track record and experience,” he said.
CBRE
SURGE IN FLOWS
Allocations to emerging Asia’s data centre market in the first half of 2024 increased nearly five-fold in the previous six months, according to MSCI data provided to AsianInvestor earlier this month.
Total flows to India, Malaysia, Indonesia and the Philippines increased to $735 million between January and June 2024 from $135 million between June and December 2023 as rising costs and a shortage of available land or deals forced investors to look beyond traditional core markets.
Investors have been forced to Asia’s periphery by a scarcity of deals and high prices in more developed markets like Australia, Japan and Singapore, which some believe no longer represent value to investors.
“In Singapore and Japan costs really are starting to move too high,” said Thompson.
By contrast, the surge to emerging Asia had been driven by the lower prices and less competition in Asia’s emerging markets, according to Iskandar, who predicts the trend will continue.
“Emerging markets across Asia provide a golden opportunity for investors to gain first-mover advantage. There is generally less competition, and the price of land and construction costs are generally much lower in comparison to developed markets,” he said.
MAJOR INVESTORS
Asset owners, including some of the world’s largest pension and sovereign funds and family offices, have recently expanded allocations into these more peripheral Asian markets.
In May, Princeton Digital Group (PDG), one of Asia’s largest data centre companies with more than 20 data centres across China, Singapore, India, Indonesia, Malaysia, and Japan, secured a $280 million green loan to fund the build-out of a new data centre campus in Johor, Malaysia.
PDG’s largest investors include Ontario Teachers' Pension Plan Board (OTPP), the $248 billion Canadian pension fund, and Mubadala Investment Company, the $302 billion Abu Dhabi sovereign fund.
JLL
The influx of capital is changing the composition of markets in Malaysia, Indonesia and Vietnam, a trend that is likely to accelerate, according to Celina Chua, data centre client solutions director, Asia Pacific, at JLL.
“Vietnam’s DC market is still dominated by local telco players. However, international developers and operators are starting to enter the space, building new facilities,” she said.
She pointed pointing to a new 20 MW project funded by Gaw Capital, which is due to be operational by the first quarter of 2026 offering a facility with 20 MW capacity.
Gaw Capital is one of Asia’s largest private equity groups, which includes substantial assets of the Gaw family, whose net worth Forbes estimates at $1.85 billion.