APAC Data Centre Investment Set to Surge as AI Fuels Demand: MTD TV

With last month’s record $16.1 billion acquisition of Australia’s AirTrunk by Blackstone and the Canada Pension Plan Investment Board ranking as the biggest data centre transaction to date, the world’s largest investors are jockeying to get on top of an AI-driven growth wave in the industry, according to senior executives from ST Telemedia Global Data Centres, Nuveen, Baker McKenzie and Yardi speaking at Mingtiandi’s 2024 Data Centre Forum on Tuesday. Watch the full recording>>

Global institutional investors including private equity funds, pension funds, and sovereign wealth funds are stepping up allocations to a sector that is expected to grow globally at a compound annual growth rate of as much as 15 percent from 2023 through 2030, according to McKinsey, as growing AI and cloud adoption fuels demand for digital infrastructure.

“It’s only natural…that the industry is now seeing some of the big boys in the form of private equity, pension funds, and sovereign funds, given that they’ve been sitting on dry powder for the longest time,” said Michael Tanujaya, head of investments and strategy at ST Telemedia Global Data Centres. “Now you’re seeing Blackstone, KKR, BlackRock, GIP, Digital Bridge all opening up their treasure box and saying, ‘we have to be in the sector, this is the time we’re going to go all in’…and what you can see from the recent AirTrunk deal, is that it’s basically a horse race all the way until the end.”

The forum, which was sponsored by Yardi, saw Tanujaya joined on the virtual panel by Jing Zhou, senior director of alternatives and strategic transactions at Nuveen; Edwin Wong, partner at Baker McKenzie; and Bernie Devine, senior regional director of Asia Pacific at Yardi.

Growing Ticket Size

As AI adoption propels demand for larger hyperscale facilities, increasing capital requirements are motivating investors to bet on the industry through a range of deal structures.

“Today, for each campus development, we are looking at up to $1 billion or $2 billion in equity alone for a single campus,” said Zhou. “That provides capital allocation opportunities. So we’re providing the growth capital alongside and supporting the operators to develop their projects in various locations. As AI demand evolves, the amount of capital required will be intensified, therefore providing more opportunity for capital providers, operators, and various funds with different strategies at all different stages of the development to co-invest or club, however, the structure may on the equity side, be to develop a data centre portfolio.”

With project ticket sizes growing, Zhou pointed to the importance of selecting projects with ample liquidity and exit opportunities, including the ability to sell the stabilised asset to yield-driven core vehicles. Nuveen, a unit of US financial services giant TIAA, currently manages $2.7 billion of data centre assets globally through its equity strategies.

Surging demand for data centres has also seen logistics developers pivot into the sector, with industrial specialists including ESR, GLP, and Goodman leveraging their expertise in building sheds to construct core-and-shell facilities for data centre operators.

“We’ve seen a range of our logistics clients, who’ve had deep expertise in building sheds, and over the last five, eight years have seen the level of technology in their sheds get a lot stronger to the point now where they’ve been confident to build out a data centre capability,” said Devine. “And quite a few of our clients – Goodman, ESR, several others – have been in that space and doing it quite successfully.”

High Valuations

With data centre providers vying for a limited number of hyperscale tenants, Wong, who co-leads Baker McKenzie’s Asia Pacific data centre focus group, anticipates consolidation in the sector as the largest data centre users increasingly choose to work with leading operators in the industry.

“The handful of hyperscalers…have a relationship with a handful of big operators in the region,” said Wong. “The top five, top six operators in the region have double the capacity of the next operator in the region. And so we are going to see either consolidation between those top big operators or consolidation between some of the smaller operators so they get more scale.”

Blackstone and CPPIB’s acquisition of Australia’s AirTrunk valued that business at over $20 million per megawatt of committed capacity, with Wong expecting increased M&A activity in the sector as heightened valuations provide opportunities for investors and developers to monetise stabilised assets.

“I think a lot of players in the market are probably quite happy at the valuation that AirTrunk got,” said Wong. “A fund manager like Blackstone doesn’t pay $16 million unless they expect to grow and scale and make money on that $16 billion. So that means growing by acquiring those sites, acquiring those locations with the power and the land, and ideally with the hyperscale contracts so they can scale.”

Mingtiandi’s 2024 Data Centre Forum continues on Wednesday with a spotlight interview with Princeton Digital Group chairman and chief executive Rangu Salgame, as the executive highlights the data centre operator’s strategies for scaling and growth amid the AI-driven expansion.

On Thursday, the forum will return with a panel discussion on Southeast Asia’s data centre markets featuring Woon Teng Koh, director of corporate development with Equinix; Ben Chow, head of research for Asia at MSCI Real Assets and Ai Leen Tang, a Malaysia-based partner with Baker McKenzie member firm Wong & Partners.