Investors write bigger cheques for Asian data centre assets

Already on the rise pre-Covid, investments into data centre assets in Asia have accelerated in the past year, fuelled by interest from investors across the spectrum.
Investors write bigger cheques for Asian data centre assets

Investors are betting big on the data centre economy in Asia, with flows into the sector set to peak this year, a September report by real estate services firm CBRE showed. At $1.8 billion, data centre investment volumes in Asia Pacific for the six months to June have already touched 80% of full-year 2020 volumes, according to CBRE.

The sector will maintain that strong momentum for the rest of the year as several major deals that are in the pipeline come through, the company said. Upcoming trades include Singapore-headquartered CapitaLand’s Rmb3.66 billion ($567.6 million) acquisition of a hyperscale data centre in Shanghai, and Keppel DC REIT’s Rmb635.9 million ($98.6 million) purchase of Guangdong Data Centre. Both transactions are expected to be completed in the July to September quarter.

“The sector as an asset class was growing really strongly and then, with COVID, with the work-from-home protocols that most of us undertook, that growth has been accelerated,” Tom Fillmore, Asia Pacific Data Centre Capital Markets director at CBRE, told AsianInvestor.

“There is a lot of capital looking into the space, be it private equity, investment banks or sovereign wealth funds. We do see a real proliferation of groups all across the spectrum in terms of buckets of capital,” Fillmore said.

Asset disposals by telecom players through sale and leaseback deals will be among the key drivers of data centre acquisition opportunities in Asia Pacific, according to the report. Greenfield developments by data centre operators will also provide investment avenues. 


Data enterprises have become entrenched in the past decade, with the rise of ecommerce and the advent of cloud storage. Having had time to observe these changes over the years, investors’ understanding of the sector has evolved with the progression of the business.

Just five years ago, apprehensions around the pace of technological change and the risk of obsolescence of data storage structures were top of mind for investors, said Fillmore. That mindset has given way to a more strategic, long-term perspective on data centres. Investors have started treating these assets as an infrastructure play.

“The conversations we have [with investors] are more about holding this asset to perpetuity,” Fillmore explained.

“Originally, and again, it's group dependent, most [investments into data centres] were being underwritten within a three to seven-year timeline.

“Now, it seems to be that while those timelines are still in place, most of these groups have no interest in selling the data centre and, if anything, they just want to flip it into their core funds. In terms of a timeline, it's like there is no timeline. They want to have these assets on their books for the next 40 years,” he added.

The small contracts from banking and SME customers and the high margins that characterised the data centre industry in its infancy are no longer commonplace. The sector has shifted to a wholesale business model.

“Now we're seeing a migration to maybe seven end customers that say they want to control their entire facility and, as you go down that stack, while the dollar amount gets bigger, the actual ROI gets smaller and smaller,” Fillmore said.


Investors’ endeavours to build their data centre portfolios will be complicated by variations in the development of the sector across different parts of Asia.

Data centre investment opportunities in the region will be predicated on three factors: the ability to procure the right land sites and whether that can be done on a freehold basis; access to large amounts of power in a reasonable amount of time; and the density of the fibre-optic cable infrastructure in the jurisdiction in question.

While availability of land is a problem in Hong Kong, opportunities in Japan are constrained by protracted timeframes for electricity supply to reach data centre hubs that have sprung up around Tokyo and Osaka.

“When we say power, the quantum we're talking about is 50 to 150 megawatts gross. For a market like Japan, it can be anywhere from two to six years to deliver power to a site, which is a long time when these groups [data centre operators] are used to being able to procure power in under 12 months,” Fillmore said.

In Singapore, meanwhile, authorities have hit the pause button on the release of land for data centre operations in a bid to moderate the expansion of these energy guzzlers amid sustainability concerns.

Hong Kong and Singapore do have an edge over other places in Asia in that they enjoy high connectivity with international fibre-optic cable networks, allowing them to efficiently service nearby regions, noted Udhay Mathialagan a Managing Director in Brookfield’s Infrastructure Group.

However, regulations to ensure data security and sovereignty, mandating that the information stays within national borders, could dissuade companies based in surrounding areas from using data centres in these city economies, he said.

Hong Kong, Japan, and Singapore represent the more mature data centre markets in Asia – but Interest has surged for data centre investments in developing countries on the continent, where pandemic restrictions and very large mobile phone-using populations are fuelling rapid uptake of online services like e-wallets and grocery shopping.

“India with its large, relatively young population has been rapidly using digital technologies for business, shopping and entertainment – all of which have accelerated through COVID-related disruptions,” Mathialagan said in an emailed response to questions from AsianInvestor.

The South Asian country will figure in the long-term plans of all the major global hyperscale customers for data centres, reckons Mathialagan.

Brookfield Infrastructure and data centre operator Digital Realty announced in July that they have inked an agreement for a 50-50 joint venture to establish institutional quality data facilities in India.

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