Favourable Demographics, Policies Fuel SE Asia Data Centre Growth: MTD TV

Southeast Asia is emerging as a primary market for data centre investment as the region benefits from a confluence of favourable demographics, abundant resources, lower costs, and supportive government policies, according to senior executives from Equinix, law firm Wong & Partners, and MSCI speaking at Mingtiandi’s 2024 Data Centre Forum on Thursday. Watch the full recording>>

With Singapore continuing to move slowly on data centre approvals following its lifting of a moratorium on new developments in 2022, and developers in markets such as Japan and Korea facing higher project costs, capital chasing the sector has increasingly shifted to Southeast Asia. A growing population, lower land and energy costs, and state initiatives promoting digital infrastructure are bolstering the region’s value proposition, according to Woon Teng Koh, director of corporate development at US-based Equinix.

“There are a lot of attractive macroeconomic and demographic factors that contribute to the growth and demand for data centres in Southeast Asia,” said Koh. “We see rising internet penetration. We see a growing young middle class population. Governments are providing policy support to make infrastructure investments easier…and on the supply side, we see that markets are very attractive because of the lower cost of land and energy prices, tax incentives, and options for renewable energy.”

The forum, which was sponsored by Yardi, saw Koh joined on the virtual panel by Ai Leen Tang, a partner at Baker McKenzie member firm Wong & Partners, and Benjamin Chow, head of Asia real estate research at MSCI.

Malaysia Boom

Within Southeast Asia, Malaysia has stood out as a major beneficiary of data centre investment, much of which has been deployed in the southern state of Johor. The country’s early stage IT capacity reached 2,702 megawatts at the end of 2023, representing a 240 percent year-on-year jump, while live capacity more than doubled to 280 MW over the same period, according to industry information provider DC Byte.

Malaysia has seen a flurry of digital infrastructure investments announced recently by tech giants including Microsoft, Google, Amazon, Nvidia, Oracle, and ByteDance; and telecom providers Singtel, Telekom Malaysia, and Japan’s NTT; as well as data centre operators such as Princeton Digital Group, STT GDC, and Bridge Data Centres.

“What we are seeing is, real estate investors and infrastructure investors are getting more comfortable with investing in emerging markets,” said Chow. “Over the past five to ten years, data centre investments were almost exclusively within tier one markets, heavily dominated by Singapore, Australia. More recently, we still see a lot of interest in tier one markets, especially Japan and Korea, but investors are also going to many of these emerging markets…for many of them, their first port of call is Malaysia.”

Kuala Lumpur-based Tang, who is part of Wong & Partners’ real estate practice group, attributed growing investment in Johor to the government creating supporting infrastructure, tech-friendly policies; availability of land, power and water; as well as operators looking for alternatives to a restricted Singapore market.

“Because of the spillover from Singapore..you need somewhere to go,” said Tang. “Where is the most strategic location? Johor. We have the land. We are close to Singapore. We have the connectivity. The infrastructure is there. The Johor government has actually invested a lot of money in building the infrastructure to facilitate the data centre developments. I think that provides a lot of comfort for data centre investors.”

AI-Driven Growth

Outside of Malaysia, NASDAQ-listed Equinix identified the Philippines as an attractive market on the back of a growing e-commerce and digital payments, as well as state policies promoting digitisation and AI. The company in July entered the Philippines with the acquisition of three data centres, marking the country’s fourth market in the region after Malaysia, Indonesia and Singapore.

“We see the Philippines’ digital economy growing at a compound annual growth rate of 20 percent,” said Koh. “It will reach $35 billion by 2025 and is driven by a couple of things: high internet penetration, booming e-commerce and digital payments, and government initiatives. And of course, AI. They are empowering the use of AI with the national AI strategy and AI roadmap.”

While data centre demand in the region is still mainly driven by cloud usage, growing AI adoption is fueling capacity expansion throughout the region, with Koh pointing to the technology as becoming a mainstream offering in the medium to long term.

That view was echoed by Chow, who sees Southeast Asia benefiting from the growth of AI, which has fewer location constraints than cloud applications.

“AI is probably more relevant for Southeast Asia as opposed to more mature markets like Japan and Korea, which are primarily driven by cloud much more than AI,” said Chow. “It’s much more expensive and difficult to build data centres in these markets compared to Southeast Asia, where you have a lot more government support and lower cost of land and labor. On top of that, the AI data centres need not be as close to the end users as cloud data centres. So broadly speaking, we think AI is much more relevant for many of these emerging markets, especially Southeast Asia.”

Mingtiandi’s 2024 Data Centre Forum continues next week with an interview with Digital Realty Asia Pacific managing director Serene Nah on Tuesday, 15 October before concluding on Thursday, 17 October with a panel focused on the Japan and Korea markets featuring speakers from ESR, DC Byte and Gaw Capital Partners.