With its enormous population and growing internet user base, Asia-Pacific has become a prime destination for data centre (DC) investments. This development has occurred amid a rapid expansion of DC buildouts into peripheral locations that offer the necessary land and power resources to meet the growing demand for related infrastructure.
Data centre-related transactions in the region surged to US$22 billion in 2023, nearly 2.4x the level recorded in the preceding five years, which included the market stagnation caused by the Covid-19 pandemic, data from MSCI show.
This surge has been driven by the rapid development and adoption of artificial intelligence (AI) technologies. As DC operators prepare for the AI explosion, there has been a significant buildout of capital-intensive infrastructure, designed to accommodate the large number of specialized semiconductors AI technologies require, according to the latest report of CapitaLand (CLI), a Singapore-based real estate investment and management firm.
The APAC region has seen a strong demand for dedicated and co-location DCs. Dedicated DCs are those built and operated by a single entity for its own use, typically large corporations or government organizations. Co-location DCs are facilities where equipment, space, and bandwidth are available for rental to retail customers. These shared environments allow multiple customers to co-locate their servers and networking equipment in a single physical location, providing cost efficiencies and scalability.
The APAC co-location market, valued at US$26 billion, represents 39% of the global market and is expected to double by 2026, according to CBRE and CLI PERA Research.
Institutional investors see opportunities in the rising demand for DCs in the region as they pivot towards alternative asset classes that provide inflation protection and resilience against macroeconomic headwinds. At the same time, investors are drawn to eco-friendly DCs that uphold environmental, social, and governance (ESG) values, according to CapitaLand’s report.
The lack of more advanced DCs in the region that meet the sophisticated requirements of AI-powered businesses presents investment opportunities in building new ones. Such investments, aside from satisfying the new demand, can also potentially yield higher returns.
This strategy not only satisfies new demand but also potentially yields higher returns. Cities such as Singapore, Tokyo, Osaka, Seoul, and Sydney have emerged as key markets for this new generation of DCs. Major Indian cities, including Mumbai, Bengaluru, and Chennai, also show promising growth, according to the CapitaLand report.
India has recently emerged as a hotspot for DC investment, driven by a robust uptake of digital technology and a rapidly growing base of internet users. With one of the world’s largest mobile subscriber bases and low internet penetration rates, the local DC industry in India has a long runway for growth, particularly in Mumbai and Bengaluru. These cities are outperforming their regional peers due to potential economic growth from a low base and rapid adoption of digital technologies.
The classification of DCs as “infrastructure” in India's FY2022-23 Budget has provided significant impetus towards creating an institutionalized asset class, with anticipated increases in demand for local data storage and management. This trend is likely to continue, with co-location DC inventory projected to almost quadruple by 2030.
As APAC continues to lead in digital adoption, CapitaLand forecasts that the region’s network infrastructure remains structurally undersupplied, particularly in populous sub-regional hubs. This ongoing situation underscores the imperative for further investment and development in the region’s capacities.
