Data centre investors flood emerging Asia as core markets dry up
Data centre investors are increasingly targeting emerging Asia as a shortage of deals in the region’s more mature markets forces them into riskier, less developed investments.
In the first half of 2024, allocations to emerging Asia’s data centre market increased nearly five-fold in the previous six months, according to MSCI data provided to AsianInvestor.
Total flows to the group, comprising India, Malaysia, Indonesia and the Philippines, increased from $135 million between June and December 2023 to $735 million between January and June 2024. This was the second-largest six-month period on record.
The increase contrasts with declining flows over the first half of this year to Asia’s established data centre markets. Total allocations to Greater China, Japan, Australia, Singapore, and Korea fell from $1.35 billion to $1 billion over the six-month period, MSCI figures showed.
“Southeast Asia is busy. Our firm is actively working on deals in Indonesia and the Philippines,” Spencer Park, special counsel in the Seoul office of Milbank LLP told AsianInvestor.
Park’s clients include a number of Korean institutional investors and asset managers.
RISING ALLOCATIONS
Investor flows into emerging Asia helped the Asia-Pacific data centre market to a brisk first half of the year, with a total of $1.73 billion of investor flows, up from $1.49 billion in the six months prior. Malaysia dominated, accounting for $477 million of allocations, more than any other country, according to MSCI.
Park said Milbank has worked on several recent deals in emerging Asia, including arranging $1.5 billion of financing to AdaniConneX to develop up to five data centres in Pune and Hyderabad in India, the nation’s largest sustainability-linked financing.
In April, AdaniConneX, an Indian multinational data centre group formed between Adani Enterprises and Sweden’s EQT-owned EdgeConneX, said it would invest $5 billion over the next five years, more than half of it this year, with a large portion of the investment to come from promoter equity infusions, and $1.2-1.4 billion in loans.
Indonesia has become increasingly attractive, absorbing $282 million of investor flows since the start of 2023, according to JLL data. Both Malaysia and Indonesia are attracting allocations from debt investors too.
“More recently, we have also seen more debt being raised in Malaysia and Indonesia,” said Celina Chua, data centre client solutions director, Asia Pacific, at JLL.
She pointed to Yondr, a data centre developer, which recently secured a loan of up to $150 million from the International Finance Corporation to construct a data centre campus in Johor, Malaysia. It would be the largest hyperscale data centre campus in Southeast Asia, generating more than 300MW.
Yondr is wholly owned by Cathexis, the family office of the Texas billionaire, William Harrison.
SOARING COMPETITION
The growing activity in Asia’s developing markets comes as competition intensifies in developed markets, reflected in rising prices and falling yields.
Ben Chow, head of real assets research, Asia at MSCI in Singapore noted that Asia-Pacific single asset transactions’ yields ranged 3%-5% lately.
“Even for markets outside of Japan, where borrowing costs have risen significantly; transacted yields remain tight,” he said.
Two data centres in Sydney and Singapore were traded at yields near 3.5% in 2024. Both deals involved data centre operators acquiring the building and land from their respective landlords, he noted.
Much new investor activity targets development deals rather than completed data centre or platforms, of which there is a severe shortage, according to experts.
“In emerging markets, it is generally easier to find land, as the asset class from a relative perspective is in a nascent stage relative to the more established markets,” said Tom Fillmore, executive director, data centres, capital markets, Asia Pacific at CBRE in Singapore.
MSCI data showed emerging Asia dominating new data centre construction this year, continuing a trend that saw India alone exceed Japan, Australia and Singapore in 2022 and 2023.
“Construction of over 2.5 gigawatts of data centre capacity was recorded last year, boosted by a handful of emerging markets. Momentum remained strong for India, and surged in Malaysia,” said MSCI’s Chow.