ADIA deal extends investing streak in Asia data centres

Institutional investor Interest for Asia Pacific data centres will extend into 2023, with a recent deal by Abu Dhabi Investment Authority (ADIA) and SC Capital Partners indicating just how attractive the sector continues to be.

 

Still, concerns over sustainability are also growing, which investors need to consider.

 

“We expect [institutional investor] interest to continue to increase over 2023 and beyond,” Joe Gooi, CEO of SC Zeus Data Centers, told AsianInvestor.

 

SC Zeus Data Centers will be the operator of a recently announced data centre investment programme between Singapore-based private equity-real estate fund manager SC Capital Partners and a wholly owned subsidiary of ADIA. SC Zeus Data Centers is a subsidiary of SC Capital Partners.

 

Depending on the type and size of these investors, investors are looking to gain exposure to the APAC data centre segment via various routes, Gooi said. “We expect that joint ventures, club deals and separate managed accounts route will be taken by the larger global institutional investors.”

 

ADIA did not comment on the investment plan to AsianInvestor.

 

INTEREST SOARS…

 

Interest in Asia Pacific fast-growing data centres has swelled in recent years, including from the bigger Australian and Canadian pension funds.

 

ADIA also has a history of investing in the region' data centres: it was the biggest allocator in Gaw Capital’s platform to invest in China’s data centres in September 2020.

 

The region’s huge population base, increasing adoption of e-commerce and a push towards remote working driven by the pandemic have made digital infrastructure key critical to the success of a growing number of businesses.

 

The regional data centre market is forecast to grow at a compounded annual growth rate of 12.2% from 2019 to 2024, with the colocation market hitting US$28 billion by 2024, surpassing Europe, Middle East and Africa and North America, a June report by property consultant Savills said, citing data from Structure Research.

 

“Over the past few years, investors have become more comfortable with the asset class, even though interest is still in the nascent stage in the region,” said Tom Fillmore, director, data centres capital markets, Asia Pacific, at property services firm CBRE.

 

Overall, it remains quite a resilient asset class even though yields may soften slightly across the board as data centres become a stabilized product, Fillmore said. “Especially with an expected recession globally over the next year or two, cloud computing will be a cost saver, so data centres will continue to be an interesting investment for institutional investors.” 

 

ADIA and SC Capital Partners’ investment plan will focus primarily on the relatively developed data centre destinations of Japan, South Korea, Singapore and Australia. 

 

"Compared to the US and Europe, the data centre IT load per GDP capita is relatively low, hence we believe there is ample room for growth. In addition, with the obsolescence of older data centres, new and modern data centres are required to cater to the everchanging technological advancements,” Gooi said.

 

Gooi said over time, the importance of emerging markets, particularly Southeast Asia, will rise in the data centre sector, driven by “digitalisation of the economies, growth in subsea and inland connectivity, adoption of the Internet of Things, artificial intelligence as well as data sovereignty laws in some of these countries.”

 

…BUT CONCERNS GROW TOO

 

Even as interest soars in regional data centres, ESG concerns have also risen as several asset owners embark on net-zero and decarbonization programmes for their investment portfolios. 

 

Energy security and ESG credentials are being increasingly viewed as highly significant factors shaping data centre investment, a report in June by law firm DLA Piper said.

 

“Energy security is crucial as data centres consume large amounts of electricity as well as water. We ensure power is secured before committing to a potential data centre investment. We also focus on markets where there is stability in power and water capacity. It is also important to ensure our data centres are as efficient as possible, given the scarce resources,” said Gooi, adding that the firm works closely with investors to ensure ESG considerations are incorporated in the investment process.

Still, some asset owners have their concerns.

Robert-Jan Foortse, APG's head of European real estate, pointed to challenges to reducing emissions from data centres, where investors rely heavily on building tenants, who have a much higher level of technical expertise around maintaining and running hardware, and the power required to do so.  

“The challenge [of reducing building emissions] is harder when it comes to data centres,” he said. “The shell and core of the building – the four walls and the roof, if you like – are not the most expensive or the most important parts. The real challenges of operation are with the technology and how much does a property investor know about that technology?”

Hugo Cox contributed to this story.