GDS Holdings Limited has acquired a bonded warehouse in Shanghai that it plans to convert into a data centre, as the company continues to ramp up its capacity in mainland China in the face of rising demand for cloud services and the dawn of 5G networks.
The data centre specialist has agreed to buy the property in the Waigaoqiao Free Trade Zone in Pudong New District from Singapore-listed Mapletree Logistics Trust for RMB 330 million ($47 million), according to an announcement by the REIT’s manager.
A GDS Holdings spokesperson confirmed to Mingtiandi that the company is buying the property, which occupies a 19,571 square metre (210,660 square foot) site, with the intention of converting the distribution centre in Shanghai’s best known duty free economic area into a data facility.
The announcement comes just over three weeks after the Shanghai-headquartered data centre developer beefed up its Beijing portfolio by purchasing a data centre campus, which is believed to be majority-leased to a Tencent-backed social video streaming app, for RMB 2.5 billion.
Building a Data Centre in Shanghai’s Free Trade Zone
The planned facility is a further fortification of GDS Holdings’ mainland China portfolio, which covers a combined floor area of over 250,000 square metres of carrier and cloud neutral facilities, according to the company’s latest publicly available information.
Located in the Fengshu Waigaoqiao Logistics Park near Shanghai’s Waigaoqiao port, the existing warehouse has a gross floor area of 37,698 square metres, with the current facility — which reaches up to six storeys — already leveraging 100 percent of the maximum plot ratio allowed for the site.
A GDS spokesperson told Mingtiandi that the acquisition gives the NASDAQ-listed company a potential addition to its existing suite of 12 Shanghai data centres, which the data centre specialist plans to add to with a further trio of facilities currently under construction in and around the city.
To acquire the site, GDS is paying more than double the RMB 158.3 million Mapletree Logistics Trust paid to acquire the asset in 2008 and 68 percent above the property’s RMB 196.9 million valuation, according to the announcement.
Tapping into the City’s Appetite for the Cloud
GDS’ latest acquisition to its Shanghai portfolio comes as the data centre market in China’s largest commercial hub is being driven by the expansion of cloud infrastructure in the city, with internet giants such as Alibaba and Tencent requiring a large amount of data centre space to meet demand, according to GDS Holdings.
Just under a month ago, Alibaba signed a letter of intent with AtHub for the Shanghai-based data centre provider to manage five China facilities built on behalf of the e-commerce giant for fees worth around RMB 2.4 billion over ten years, with at least one of the data centres expected to serve Shanghai.
A GDS spokesperson told Mingtiandi that there would be strong interest for a data centre at its new location from financial institutions established within the Waigaoqiao Free Trade Zone looking to harness nearby capacity for their operations.
The free trade zone, which is adjacent to Waigaoqiao port, was set up in 1990 as the first bonded transport area in China, and targets international trade, logistics and financial services. In recent years, as Waigaoqiao, which is part of the Shanghai Pilot Free Trade Zone, has held the promise of a more liberal regulatory regime and lower taxes, financial institutions including Huamei Bank and Bank of China have opened branches in the special economic area.
Selling Off a Maxed-Out Warehouse Site
Mapletree Logistics Trust, which has a portfolio of logistics assets in Asia Pacific worth S$7.95 billion ($5.89 billion), is divesting of the asset after “evaluating all viable options and taking into consideration the property’s older warehouse specifications, as well as limited future income growth and redevelopment potential into a modern logistics facility”.
Singapore wealth fund Temasek, which controls the REIT through a 100 percent interest in REIT sponsor Mapletree, which fully owns the trust’s manager, will be looking to get some further value out of the asset by recycling it into GDS Holdings, which is also backed by Temasek via its indirect wholly-owned subsidiary ST Telemedia Global Data Centres Pte Ltd, which has a 36 percent interest in the data centre developer.
The REIT manager noted in its announcement that any gain from the transaction will be distributed to unitholders after taking into account tax and transaction-related expenses, while the capital released may be used to fund committed investments or reduce debt.
Racing to Keep Up with Data Demand
The acquisition by GDS is the latest in a string of deals targetting China data centre opportunities as developers and investors race to keep up with demand for data on the mainland.
Just last month, Hong Kong-based real estate fund manager Gaw Capital Partners announced a joint venture with mainland data centre developer and operator Centrin Data to acquire, develop and operate hyperscale facilities in China, with the partners seeding that vehicle with a data centre just west of Shanghai.
Three months before that announcement, GDS reached an agreement with Singapore’s sovereign wealth fund, GIC, to build and operate build-to-suit data centres for an undisclosed Internet and cloud service provider in China.
That deal came just five months after GDS had secured a $150 million equity investment from Ping An Overseas Holdings to help fund its expansion.
GDS’ competitor, Chayora Holdings, has also been stockpiling capital for expansion, with the mainland-focused data centre developer selling a majority of its stock to UK fund manager Actis for $180 million in October of this year.