Data center investment to rise in China

Data center investment will continue to rise in the Asia Pacific region with growing interest in emerging markets of the Chinese mainland, India and Indonesia, global real estate consultancy JLL said in a recent report.

“As the cloud market matures, organizations need to establish their infrastructure capacity quickly in order to keep up,” said Bob Tan, director of alternatives at JLL Asia Pacific. “We are seeing more investors looking to enter or increase their exposure to the data center sector as it offers diversification benefits and tends to have higher yields than traditional asset classes, such as office or retail.”

Asia Pacific is experiencing a surge in data from digital products and services, fueled by rapid urban population growth and e-commerce. Businesses are shifting toward storing their data on cloud services to cope with the amount of information.

With global revenue for the colocation data center market growing at a 15.7 percent a year and expected to exceed US$60 billion by 2020, Asia Pacific’s share of that will rise to 39.2 percent by then, overtaking North America and becoming the largest in the world, according to Structure Research, an independent research and consulting firm.

While China’s Hong Kong, Singapore, Sydney and Tokyo remain primary locations for established investors, cities in the Chinese mainland, India and Indonesia are emerging hotspots as they offer large population bases, high Internet penetration rates and social media activity. Data protection and cyber security legislation in these markets have forced users to switch to onshore data centers, which has further stoked demand.

For China in particular, which is already the fastest expanding data center market in the world, its needs will continue to be anchored by the fintech growth, digital transformation and big data analytics.

“Data consuming volume is growing dramatically over the years and the introduction of 5G communication has pushed the demand to a new level, to which existing data center supply around mega cities would be no longer sufficient,” said Steven Xing, head of alternative investment at JLL China. “Some second-tier cities near metropolitans, due to the availability of land and power, lower operating costs, improving network and support infrastructure, would be a perfect fit to digest the outflow from the city centers, either for operations or for data backups.”

An earlier Structure Research forecast showed that China’s colocation market will grow to US$11 billion by 2020.