Big Data, Big Market: Growth seen in Southeast Asia data centers market

The market for data centers in Southeast Asian countries is growing rapidly, a development that would bode well for the country’s property players, global commercial real estate services firm CBRE said.

Growth is driven by the huge number of internet users in the region as well as its growing economies.

“Large populations of internet users, solid economic growth, government support for industry 4.0 and 5G development continue to drive interest in data center development in Emerging Southeast Asia,”CBRE said in its Asia Pacific Data Centre Trends H2 2021 report.

“More recently, new requirements related to data security and privacy have stimulated domestic data center demand, with Thailand the latest country to introduce a Personal Data Protection Act,” it added.

CBRE said total data center capacity in Southeast Asia stood at 1,100 megawatts (MW) as of the end of last year. Singapore accounted for half of the total, while emerging markets Indonesia and Malaysia also had a sizable share each.

“Most other countries in the region are still developing, while Vietnam is at a nascent stage,” it added.

Key locations in the region

CBRE identified key locations for data center development in five Southeast Asian countries such as the Philippines, Thailand, Malaysia, Indonesia and Vietnam.

In the Philippines, Metro Manila, Central Luzon are among the key locations for data centers.

“Over the last two years, data center demand in the Philippines has been catalyzed by a growing appetite for cloud services,” CBRE said.

“Aside from traditional demand drivers such as financial services, government contracts and BPO firms, co-location demand is also being witnessed from firms that have downsized their offices and transitioned from on-premise data centers to third-party colocation. However, these sectors generally have smaller requirements and contribute to lower volumes of take-up,”it added.

Asia data center investments to grow

According to CBRE, Asia Pacific direct data center investments turnover grew over 100 percent in 2021 to $4.8 billion.

CBRE expects transaction volume and fundraising activity to remain robust in 2022.

“With data sectors having been named as the most popular alternative sector for investment by respondents to CBRE’s Investor Intentions Survey for three consecutive years, more investors will increase their allocation to the sector,” it said.

For those eyeing to enter the Southeast Asia data center market, CBRE suggested that partnering with local operators would be the best way to do so.

“Forming joint ventures with local operators remains the most viable entry route to emerging Southeast Asia as most markets in the region maintain restrictions on foreign ownership and currency controls,” CBRE said.

It cited a recent joint venture between Digital Edge and the Threadborne Group for data center development in the Philippines as an example.

“However, other potential access points are now beginning to emerge, including disposals by local telecommunications companies and data center operators,” it added.

PH on the radar for data center investments

In a separate report, Santos Knight Frank (SKF) director for Occupier Services and Data Center Lead Monica Gonzalez affirmed the potential growth of the data center market, citing data from Ireland-based Research and Markets which showed that the global data center market is estimated to grow at an average of more than 13 percent every year to $143.4 billion by 2027.

In addition, by 2023, Asia Pacific is predicted to account for 30 percent of global center revenues.

“Excitingly, the Philippines is near the epicenter of this wave of developments happening across the region,” Gonzalez said.

She said the country has been on the radar for data center operators as an emerging market with great potential in the Southeast Asia region, primarily for the local population’s high digital consumption.

Gonzalez cited data from Hootsuite showing that the number of internet and social media users in the Philippines has risen by 6.1 percent and 22 percent respectively between 2020 and 2021.

“This is supported by a wide array of characteristics that make investing ideal in the country, such as government support, the growing renewable energy sector, and availability of engineering and IT talent,” Gonzalez said.

“Infrastructure development has also been an appeal; the Philippines’ infrastructure spending will average about 5.4 percent of GDP between 2022 and 2024, a considerable investment in accessibility,”she added.

Gonzalez also identified the country’s availability of raw land as another factor that makes the Philippines attractive for data center investments.

Data centers rising

SKF dubbed the data centers market in the Philippines as one of the fastest-growing real estate sectors in the country, as it has seen more movement over the last six months than the last two years.

“The reasons are not difficult to perceive. We create 1.7 MB (or roughly the size of a photo taken from your mobile phone) every second. All of that data is stored in a data center somewhere in the world,” Gonzalez said.

“COVID-19 has only accelerated our reliance on data centers. With more video calls and hybrid work happening around the world, we are seeing greater dependence on technology. The demand for colocation, internet, and cloud services requires the need for sophisticated facilities based in-country,”she added.

Quite a number of companies have already disclosed plans to build data centers in the country since last year.

Among these are Converge ICT Solutions Inc. which plans to build a P1-billion data center in Mandaue City, Cebu. The facility will initially have 300 racks which will be housed in a six-storey building together with a contact center.

Alibaba also shared its plan to open a data center in the country. Beeinfotech opened its 19,000 square meter facility in Pasig City last July which has around 3,000 rack capacity.

Last December, Digital Edge announced a joint venture with the Threadborne Group to develop and operate a 10-MW facility in the country.

Telco giant PLDT Inc. just recently started the construction of its 11th and largest hyperscale data center facility in Sta. Rosa, Laguna.

Recently, YCO Cloud Centers, a joint venture between JJYnchausti and Cloud Center, also plans to build a 12-MW facility in the Light Industry and Science Park IV in Batangas Province.

Data center capacity to grow

SKF said it recorded approximately 125 MW of additional planned capacity from operators who expressed interest to build in the medium term.

According to Jones Lang LaSalle (JLL) Philippines, the country currently has an estimated data center capacity of 96-MW.

“This figure may triple in the next few years as more data center players are expected to enter and expand their footprints in the country,” ,JLL Philippines head of Research and Consultancy Janlo de los Reyes said.

He said the heightened need for strong data infrastructure by organizations is likewise expected to feed data center demand moving forward.

“As more companies digitize and turn to cloud platforms for seamless operations, we expect this increased reliance online to translate to greater data consumption that will prop up demand for data centers in the future,” De los Reyes said.

With the country’s potential to cater to the interest for data center development in the region, Gonzalez said the data center market is an exciting space for the Philippines.

“As the data center sector continues to grow alongside the increasing demand for data, we expect to see an upswing in activity for data center investments into the country,” Gonzalez said.