PGIM Enters APAC Data Centre Market with $575M Equinix Sydney JV

PGIM Real Estate is set to make its first Asia Pacific data centre investment after teaming up with Equinix to form a $575 million joint venture that will expand the network infrastructure giant’s hyperscale footprint into Australia.

The property fund management unit of US financial services giant Prudential has entered the joint venture partnership to build and operate two hyperscale data centres under the Silicon Valley firm’s xScale brand in Sydney, Australia, with the pair of server facilities planned to yield 55 megawatts of power capacity once completed.

“Several years ago, PGIM Real Estate spotlighted the tremendous growing need for cloud infrastructure across the Asia Pacific region as a key investment opportunity,” PGIM Real Estate’s head of Japan, Morgan Laughlin said. “The formation of this joint venture relationship with Equinix is an important milestone in the process of taking a research-led initiative from theory to practical implementation for the ultimate benefit of our investors,” added Laughlin, who is leading the firm’s regional data centre strategy.

The new venture would boost Equinix portfolio of xScale data centres globally, including projects under development, to 34 facilities carrying a capacity of over 675 megawatts. That set of server sheds is estimated to be valued at $7.5 billion following formation of this venture, or 9 percent more than the portfolio’s estimated total value in June this year when Equinix announced an agreement to expand an existing venture with frequent partner, Singapore sovereign wealth fund GIC,

Supporting the Clouds

“We believe that the demand growth story for high-quality, well-located hyperscale data centers in Sydney remains very compelling,” said Steve Bulloch, managing director and head of PGIM Real Estate for Australia. “We also anticipate continued consolidation and future barriers to entry in the sector.”

The announcement of the partnership came nine months after PGIM raised a total of $1 billion for its fourth APAC value-add fund which included data centres as one of its primary targets for acquisitions, after the fund manager had made earlier ventures in the sector in the US and Europe.

Under the deal, PGIM will maintain an 80 percent stake in the JV and Equinix will own the remaining 20 percent interest, a similar structure to the data centre provider’s earlier deals with GIC. The Prudential affiliate is expected to provide market insight and support to the JV using its background in local real estate equity and debt markets.

Equinix said the planned facilities are aimed at serving core workload deployment requirements of hyperscale companies including the world’s biggest cloud service providers. Among the Nasdaq-listed company’s existing clients are Alibaba Cloud, Amazon Web Services, Google Cloud, IBM Cloud, Microsoft Azure and Oracle Cloud Infrastructure, according to Equinix.

Global Ambitions

The JV is expected to close within this quarter after obtaining regulatory approvals for SY9x and SY10x, as the proposed facilities have been dubbed, with the first hyperscale project expected to open in the first quarter of next year.

With the Sydney plan signed, the two companies may have opportunities to work together beyond Australia’s borders, according to PGIM.

“We are extremely pleased to partner with Equinix on this investment in Sydney, and we look forward to expanding this strategic relationship in other markets, thereby providing our investors further access to the increasingly important digital infrastructure sector,” Eric Adler, chief executive officer of PGIM Real Estate said in a release on Tuesday.

Equinix currently has six xScale data centres operating globally with one each in Tokyo and Sao Paolo, plus paired projects in Paris and London.

Aussie Potential

While the venture is the first to bring Equinix’ supersized facilities to Australia, the company has already established 17 of its smaller International Business Exchange data centres in the country, with that number expected to grow to 18 by year’s end upon the completion of its PE3 facility in Perth.

Now with cloud computing and the mobile Internet booming, Equinix and PGIM are betting that hyperscale data centres, where a single client leases 10MW of capacity or more represent the future of demand.

“The world’s largest hyperscalers have partnered with Equinix for many years to leverage our global platform to directly connect with their business partners and customers, said Paul Dwyer, Equinix’ senior director for xScale development for Asia Pacific. “These hyperscalers are looking for certainty and further access to the important digital infrastructure necessary to meet accelerating customer demand and our partnership with PGIM recognises the market opportunity to support their expansion and serve their unique deployment needs.”

The hyperscale colocation market in Sydney and Melbourne is expected to grow at a compound annual growth rate of 22 percent from 2021 through 2026 in terms of built-out power capacity, accord to data centre consulting firm Structure Research.

“Australia is set to build out its next wave of capacity, with the hyperscale market expected to grow about double the rate of the retail segment by 2026,” said Jabez Tan, head of research at Structure Research. “There have been unprecedented levels of cloud adoption in the country.”

Partners for Progress

For Equinix the agreement with PGIM provides it with an additional capital partner after earlier establishing a relationship with GIC which powered the opening of the firm’s first Asian hyperscale facility, TY12x, in Tokyo during March of this year.

That opening came after the Singaporean sovereign wealth fund formed a $1 billion joint venture with Equinix in April of last year. Then in June of this year, GIC said it would invest another $3.9 billion with Equinix with the goal of building a total of 32 hyperscale facilities globally.

In mid-2019 Equinix and GIC had signed a $1 billion joint venture deal to build and operate data centres in Europe.