New infrastructure to drive China data centre surge
Asia Pacific’s data centre is poised to enter a new cycle of emerging market led growth
BEIJING, 9 March 2021 China’s data centre sector is poised to enter a new cycle of growth, further consolidating its place one of the Asia Pacific’s larger emerging markets for this real estate asset class. According to JLL’s The Rise of New Data Centre Growth Markets report, released today, Asia Pacific is home to three of the world’s four most populous countries (China, India, and Indonesia), all of which are expected to outpace more established data centre markets in the region.
Surging internet usage and smartphone adoption, coupled with social media, e-gaming, video streaming, and big data applications, are all fuelling requirements for extra data centre capacity in China and regionally. According to JLL’s report, operator and investor demand for data centres continues to grow exponentially in Asia Pacific, fuelled by cloud computing and the consumer mobile internet. The market for hosting, storage, and computing cloud services is expected to be worth USD 163 billion in 2021, which is an almost 30% increase over 2017, says the report. Additionally, cloud traffic in Asia Pacific is set to grow by more than 150% over the same period.
“The sheer scale of growing data consumption makes data centre infrastructure a compelling global and regional opportunity for both investors and operators. There are clear opportunities across the Asia Pacific data centre sector, in both emerging and mature markets, as demographics and regulatory frameworks evolve,” says Bob Tan, Senior Director, Alternatives, Capital Markets, JLL.
According to JLL, investor, and operator activities in mainland China, India, and Indonesia have grown significantly in recent months. They will further expand as demand for data centre services surges in these high-growth markets. JLL believes that all three emerging markets are currently being underserved by existing supply and facing strong demand from local and international operators.
Mainland China has more existing and upcoming supply than any other market in Asia Pacific, with significant investments and commitments announced over the past 18 months. In June 2020, Blackstone announced an investment of USD 150 million in Chinese data centre provider, 21vianet. Additionally, GDS and GIC announced a partnership in 2019 to build and operate data centres in China, signalling the market's longer-term potential.
Eric Pang, Head of Capital Markets at JLL in China, says: “In the past few years China's data centre sector has continued to expand. By 2019, it has reached to the scale of RMB 100 billion in the sense of total asset value. In terms of growth rate, China's data centre market has also maintained an average growth pace of 30% per annum in the respective period. From development and construction perspective, the data centre sector will most likely follow the national urbanization trends focusing on the established metropolitan areas, which will lead to further urban agglomerations across China and drive regional development of new locations. Hence, we foresee Pan-Beijing, YRD and GBA areas will be the ‘winners’ in the games of site selection and capital allocation. In addition, the timely launch of public REITs will potentially accelerate the growth of this already ‘popular’ sector. ”
Despite the clear opportunities in the region’s emerging data centre markets, there is also a strong local component to the investment evaluation criteria, which needs to be considered. Data localisation laws and other regulations and factors such as proximity of markets served and access to power supply require a nuanced view of the sector.
Key occupier and investor themes beyond 2021
Microlocation and Power supply:
There are other considerations governing market entry, such as water and fibre networks' availability and connectivity to cable landing stations. Micro-location factors for all markets include a need to be located away from the flight paths of airports and areas prone to natural disasters, where they need to be outside of 100-year flood plains or earthquake faults.
The evolving role of renewable energy:
Carbon emissions are becoming an increasingly significant challenge as data centre capacity and energy consumption grow. A growing number of governments, including those in mainland China, Singapore, South Korea, and Japan, are already making ‘Net Zero’ pledges carbon neutral by the second half of the century. These commitments have clear implications for data centres, and operators are increasingly likely to look at renewable energy sources to meet their power supply needs.
Operating models and market dynamics:
The colocation market has gradually evolved. The market share of retail businesses is likely to be limited going forward as enterprises have been consolidating their requirements. Simultaneously, the movement towards hybrid and cloud deployments has also contributed to a higher degree of interest in the wholesale business. Several established operators have embraced the trend and are actively pursuing opportunities in the hyperscale market. New platforms and investors tend to look at this segment since it is easier to understand and provides speed to market and scale.
Partnerships to entry:
Many operators looking to expand to new and emerging markets choose to partner with local developers as international groups may require joint ventures for development and/or operation from a regulatory standpoint. Local developers also bring market-specific expertise to the table, such as access to land banks, the ability to navigate complicated approval processes, and sourcing adequate power supplies. A local partner will be experienced in building up the superstructure and carrying out the necessary civil works.
While the regional drivers are elevating established markets along with the entire sector, we’re now entering a new phase for emerging markets as they embrace the growth of data centres. Bob Tan says: “Both investor and operators are focused on the sector’s prospects, at present, the big focus now is identifying the right data centre opportunities in the region’s emerging markets.”
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.6 billion, operations in over 80 countries and a global workforce of more than 91,000 as of December 31, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.