Hyperscalers Fuel Rise Of Regional Data Centre Platforms: MTD TV

 Global Internet giants including Amazon and Google are filling up more than two-thirds of the region’s data centres as they expand their footprints in Asia, and that demand is creating both opportunities and challenges for digital infrastructure developers and their investors, experts from Logos, Cushman & Wakefield and Baker McKenzie said at Mingtiandi’s APAC Data Centre forum on Wednesday.

Speaking at the event, which was sponsored by Yardi, Logos data centre head Paul Dwyer said pan-Asia platforms able to establish facilities and expertise are gaining traction in Asia Pacific as Internet companies, especially those with larger operations, look to streamline their expansion in the region.

“Customers of all varying types are chatting to us and chatting to others about trying a solution to multiple markets at once because it’s not easy to be able to do these big expensive capital intensive projects in different jurisdictions,” Dwyer said. “There’s just not the time to be renegotiating contract by contract, city by city.”

Vivek Dahiya, a managing director with Cushman & Wakefield who serves as the firm’s India lead for data centres and new initiatives, added that the amount of capital being poured into the market post-COVID is supporting the creation of more regional platforms, as hyperscalers sign up for infrastructure that will support their expansion in the region.

Scaling Up Comes With Risk

With fund managers including ESR, SC Capital and Logos having launched data centre development platforms in recent years, Edwin Wong, a Baker McKenzie partner advising on fund investments in the region, said that these institutional investors are being drawn to the sector by its growth potential as the largest data centre tenants scramble to secure more capacity.

While companies like Google have developed some of their own facilities in the region, Wong said hyperscale occupiers such as cloud service providers will continue to source their rack space requirements from third party data centre operators given the challenges and costs that come along in developing their own projects.

A group of no more than a dozen of global Internet firms take up around 40-60 percent of existing data centre supply globally, Dahiya said, with the majority of that demand concentrated among the top five occupiers – Amazon Web Services, Google, Microsoft Azure, Alibaba and Tencent.

The scale and concentration of this demand means that major occupiers are increasingly looking for pan-Asia platforms which can serve their needs across multiple markets, while the wave of capital flowing into data centre development means that more regional platforms are springing up to meet those requirements.

“It will take a while before [more] genuine, multiple regional platforms will be able to provide for this [but] it’s definitely happening at the cloud/hyperscale level,” he said. “If you’ve already worked and delivered for a cloud firm… you understand what the client is eventually looking for, and that makes it easier for you to replicate it or other geographies.”

A report by Arizton indicates that APAC’s hyperscale sector reached $42 billion in value in 2021 and accounted for 65 percent of the region’s overall data centre. The region’s hyperscale segment is also projected to grow by an average of seven percent annually by 2027 and outpace the 6.3 percent estimated growth rate across all APAC submarkets, based on the report.

While the largest hyperscalers can provide big chunks of revenue for data centre operators that generate long-term yield, Wong cautioned that meeting the requirements of the mega-clients can also mean taking on more risks, as many of the global players may bring with them their own leasing templates specifying terms that maximise their benefit.

One major risk for data centre operators is termination for convenience that allows companies to pull the plug as they see fit, while conditions concerning change of control or political developments can also complicate these lease deals

Wong also noted that with hyperscale players making stringent demands on data centre reliability, their service level agreements can be “a lot more punitive and come with a lot heavier penalties.”

Developing Market Potential

Dwyer, a former Equinix executive who joined industrial specialist Logos last month, sees some of Asia’s best opportunities for data centre development coming from the region’s underserved developing markets.

With Indonesia having already attracted projects from a number of regional data centre startups, Dwyer pointed to the Philippines as a market where the current data centre capacity falls far short of the needs of the country’s fast-growing population as more processes migrated to the cloud.

“I think the opportunities are huge, and I think that’s what a lot of the focus has been over the recent years in Asia Pacific and probably will be for the next decade,” he said. “Most Southeast Asian countries have significant population bases, which have relatively been underserved by technology to date.”

Expanding into these emerging economies, however, requires that developers be prepared to adjust their strategies to address the different challenges in each local market

In India alone, Cushman & Wakefield’s Dahiya said the world’s second-largest country by population is also gaining traction in digital infrastructure space with about 1.4 gigawatts of new data centre supply coming online in the next five years.

The additional rack space will transform the country into a 2 gigawatt data centre market within five years and put it on par with the current capacity in China, Dahiya said.

“There is a lot of action happening. In all the other emerging economies, these countries are just catching up on digital infrastructure, this is the way economies would function in the future,” he said. “I personally feel, in all emerging economies, we are just beginning to scratch the surface in terms of how much more megawatts would come pumping.”

Greater China Up Next

Following today’s hyperscale panel, Mingtiandi’s APAC Data Centre Forum is set to continue on Thursday, 15 September with a session focusing on opportunities in the Greater China market.

For the Thursday panel, MTD TV has invited industry leaders Joelin Ma, director for non-listed real estate in Asia with APG Asset Management, Zhang Hong, head of private equity at law firm Baker McKenzie FenXun and Johnny Shao, managing director for investments at Gaw Capital, to share from their experiences across mainland China and Hong Kong.

The last two panels on the month-long series comprise a 20 September session on the Japanese and Korean data centre market with speakers from ESR, Nuveen, JLL and EdgeConneX, and a final talk on sustainable data centre innovation on 23 September featuring leaders from SC Zeus Data Centers, Ivanhoé Cambridge, SDAX and Cushman & Wakefield.