Investor Demand for Data Centers in the Asia Pacific Will Reach Record Levels in 2021

Recent CBRE research indicates that increased investor interest in Asia Pacific data centers is being driven by the rapid increase in data demand, which is being fueled by continued growth in cloud computing and social media use. Investment in the sector is expected to reach record levels in 2021.

More than doubling the previous high of $2.2 billion in 2020 and exceeding investment volumes for the previous four years combined, direct investment in the APAC data center sector reached a total of $4.8 billion in 2021. Data centers continue to be the most popular alternative investment for the third year in a row, according to a recent CBRE survey of real estate investor intentions, and transaction volume and fundraising activity are predicted to be strong in 2022.

The need for larger facilities and multi-site deployments from hyperscale cloud providers has supported interest in the sector. In H2 2021, there were a number of sizable portfolio deals in APAC, including the acquisition of PCCW’s data center portfolio in Kuala Lumpur and Hong Kong by Vantage Data Centers, backed by DigitalBridge, and the purchase of five data centers in Japan by Digital Edge and Stonepeak Infrastructure.

“As investors’ knowledge of the industry develops, a sizeable amount of capital is looking to invest in data centers. The sector has already experienced significant growth in recent years, and the pandemic-driven digitalization trend has really stoked interest. Investors are choosing the operational path by establishing specialized platforms to secure higher returns, despite the fact that opportunities will be constrained in comparison to the demand that we are seeing “according to Tom Fillmore, director of CBRE’s Asia Pacific Data Center Capital Markets.

Despite a record supply of 305MW in H2 2021, vacancy remained at 14% for Asia Pacific’s Tier 1 markets of Greater Tokyo, Singapore, Sydney, and Hong Kong SAR. By 2024, nearly 2,100 MW of supply are expected to be finished, with Sydney accounting for 40% of the pipeline. Sydney is now on track to have the most data center capacity in the region by 2024 thanks to the new additions.

Important report findings:

Despite the completion of 200MW of new supply in H2 2021, the demand-supply situation in the Greater Tokyo region is predicted to be balanced. Rents have remained stable as operators looking for geographic diversification outside of Greater Tokyo eye Osaka and other regional cities.

Despite the lifting of the ban on the construction of new data centers starting in Q2 2022, which would increase medium-term availability, data center rents in Singapore are predicted to increase. The supply pipeline for Singapore will lag behind that of other Tier 1 markets in the Asia Pacific due to the 60MW per year cap on the total capacity for new applications.

With recently announced mega projects, Sydney is expected to have the largest development pipeline among Tier 1 markets in the Asia Pacific. As a new capacity, completed in phases, adds to the rising vacancy, hyper-scale and wholesale rents are anticipated to be put under pressure.

Rents and vacancies in Hong Kong are anticipated to hold steady as corporate end-users and hyperscale cloud providers continue to avoid the market and short-term supply remains constrained.