The data centre market in China is set to grow by at least 20% annually over the course of the next four years. At the forefront of this growth are cloud services led by market leaders Alibaba, Tencent and telecom players China Telecom and China Unicom. In the long term, the data centre market and storage demand will also be driven by the Internet of Things (IoT), artificial intelligence (AI) and virtual reality (VR) applications.
The demand for data centres is mainly from “top-tier cities” including Beijing, Shanghai, Guangzhou and Shenzhen, where economic activities are robust and network resources are abundant. However, supply of new data centres in these cities is limited due to scarcity of land and power supplies.
The Chinese government has issued new regulatory “Guidance on the construction planning of data centres”, encouraging data centres to be built in remote locations taking climate and energy resources into consideration. This generates huge opportunities in western regions such as Guizhou Province and northern regions such as Inner Mongolia.
The 2019 data centre construction market conditions are considered hot. Major Chinese players including BATH (Baidu, Alibaba, Tencent, Huawei) and three major telecom operators (China Telecom, China Unicom, China Mobile) continue to invest robustly across four major economic regions of China.
International global cloud players continue to reinforce their partnerships with local players to offer cloud services. Apple Cloud and Guizhou SOE are expecting to continue with new phases of data centre development following their recent projects in Guizhou and Inner Mongolia. AWS and Sinnet have recently announced new data centre investment in Ningxia. Microsoft Azure and 21 Vianet continue to foster joint venture relationships for data centre business in China. Other colocation players such as GDS and Chayora have also announced their latest phase of new investment in Shanghai and Tianjin respectively.
Large scale investment is expected across the country. Successful projects require a balanced approach, with a firm grasp of local regulations, laws and zoning policies. The adoption of more recognised international standards would however benefit the market. Paying particular attention to quality, scalability and reliability is also becoming a major requirement for success in the market and is attracting international growth.
Hong Kong is an autonomous/free-market economy, highly dependent on international trade and finance, with a major financial centre within the vibrant, densely populated urban centre. It continues to be a destination of choice for global organisations seeking to develop data centre assets due to its strategic location and serving as a major gateway into China, and similarly providing access to international markets.
As a major fibre gateway for intercontinental traffic between Asia and the US, Hong Kong is recognised as one of the “Big Four” data centre locations in Asia Pacific, with over 100 active owners/operators. Research shows Hong Kong as a historically strong performer in this market and is projected to grow at a similar pace to the wider data centre market across APAC.
The limited supply of land and regulatory landscape have been the two major contributors defining the market in relation to data centre developments in Hong Kong.
The trend towards hyperscale facilities is threatened by the low availability of land in Hong Kong. Methods to overcome this include the conversion of facilities from existing industrial buildings. The advertising of the availability of greenfield sites, including information on the suitability of these for data centre usage (i.e. conditions of sale and planning restrictions) will no doubt support further developments in future.
The data centre sector has been growing fast across Asia-Pacific and likewise in Hong Kong, with tendering conditions currently considered warm.
Last year, Telin Hong Kong brought on-line its largest data centre in the city (also known as the Pearl of the Orient), adding just over 4,000 square metres of data centre space owned by Telekomunikasi Indonesia.
Global Switch Hong Kong launched stage one of its data centre located in the Tseung Kwan O Industrial Estate. The development is close to submarine cable landing stations and the Hong Kong Stock Exchange hosting facility. In response to market demand, the construction of stage two will provide 71,000 square metres of gross space.
Hong Kong’s international connectivity will continue to elevate it as a key hub in the APAC region and the continued move towards hyperscale facilities will provide opportunities for colocation providers, particularly with the growing importance of both cloud and carrier neutrality. Continued growth is anticipated in this sector with a higher demand creating long-term growth and viability for data centre businesses.
However, the recent unrest in Hong Kong is likely to have some impact on investment plans, with a number of providers taking stock and approaching the market here with some caution.
India is witnessing a boom in data centre investment, fuelled by the imminent data sovereignty act and digital India campaign promoted by prime minister Narendra Modi.
With strong market demand, colocation data centres are an increasingly attractive option for global cloud providers. Established developers in this space, such as STT, NXTRA, NTT and CTRL S, continue to expand their regional portfolios. Other players entering the market, at differing stages, are Bridge Data Centres, COLT, Airtrunk and Rackbank. Global tech giants Google, Microsoft and Amazon continue to be active in the market.
Approvals and land acquisition continue to challenge project planning, leading many international cloud providers to team up with local developers to realise their capacity expansion plans. Mumbai and Chennai are the preferred locations due to fibre proximity and power security. Other locations witnessing projects are Pune, Hyderabad and Delhi.
Data centre construction is arguably one of the fastest growing sectors in the Indian real estate industry. Market conditions remain warm moving to hot. An example of this is in the Toloja industrial estate, Navi, Mumbai, where a 600 acre land parcel has been identified to set up the first ever data centre park in India.
Known investments are the Reliance JIO DC partnership with Microsoft Azure, which is a 300MW scheme. Colt DC has a 100MW project in Mumbai and STT is planning to expand its DC portfolio to 200MW within the next three years. Bridge Data Centres has started construction of its first project in Mumbai with plans for further schemes.
Adani Group is planning a major solar powered project in Andhra Pradesh, North of Chennai. And Hiranandani Group has announced plans to build new data centres in Mumbai and Chennai. Oracle has also announced the launch of its Gen 2 Cloud in Mumbai and a deployment will also follow in Hyderabad.
A stable government and strong cloud capacity demand are setting up an upward market growth trajectory across the region. With this, the sector is witnessing increased interest from global and local investors. Steady growth is expected over the next five years.
Skills development and construction labour shortages continue to be an issue, with the industry struggling to keep up with a rapidly moving market. With this, modular construction and offsite fabrication are expected to become more commonplace on data centre projects.
The Indonesian data centre market has experienced very strong growth over the past few years, as Indonesia seeks to bridge the gap with its more advanced neighbours such as Singapore and Malaysia. However, a lack of government incentives and programmes to support the growth of data centres in Indonesia has seen the adoption of data centre services at a slower pace compared to other countries.
Indonesia is attracting investments from hyperscale cloud providers such as Google, Alibaba and Amazon, along with the local cloud vendors which are expanding their infrastructure, operations and availability across Indonesia. The demand for wholesale colocation from global cloud service providers will continue to drive data centre services revenue growth.
Other growth drivers include an increase in streaming media, rising demand for local data centres due to data sovereignty legislation and the future deployment of 5G. Latency and connectivity are increasingly becoming less of an issue with government investment for telecommunications and network infrastructure upgrades.
The data centre construction market conditions continued to warm up as the year progressed, though not quite reaching the hot conditions anticipated in 2020-21. SpaceDC has announced it will be opening the first green data centre campus in Indonesia by early 2020. Based in Jakarta, the 1.8-hectare campus will ultimately house two data centres totalling 26.6MW. With on-site natural gas power generation, the waste heat will be used to provide cooling through absorption chillers.
Amazon Web Services announced three new data centres in Jakarta which will be operational by 2022. Amazon is expected to invest US$924m in the country over ten years.
NTT Indonesia recently unveiled plans to build one of the largest data centres in the country at 45MW for a price tag of US$500m. The facility will be located east of Jakarta in Cikarang, and is expected to start operations in 2020.
Globally, Jakarta is quickly establishing it’s self as a hot market, however the local supply chain capacity from contractors and vendors and professional skill shortages will put limitation on how the local market can react to the demand.
Japan is experiencing an influx of international data centre players, with cloud providers expanding their presence in the Tokyo and Osaka markets. Firms such as Colt DCS and Equinix are also increasing their footprint in a market traditionally led by Japanese players such as NTT, Hitachi and Fujitsu.
Within the past three years, the area dedicated to data centres has grown at a rate of 1.6% year-over-year, and is expected to reach 22m square metres by 2021.
The data centre market is shifting from being a colocation driven market, despite the fact that only one of the top three global cloud service providers have their own-built data centre space in Japan. Nevertheless, a growing portion of the colocation space is wholesale to cloud service providers, and the market is gearing up towards a 50% cloud allocation by 2020, forecast by Japan’s IDC.
However, the high demand for power is outstripping supply resulting in long lead times to be allocated power, and tariffs remain high when compared to elsewhere in Asia.
Market conditions remain hot and show no sign of cooling. General contractor order books are full from anywhere between 12 and 36 months due to the busy market, and labour availability is at an all-time low.
A number of hyperscale date centre projects within the greater Tokyo area are either at the planning stage or in construction. In May 2019, Google signed an agreement to purchase land in the Chiba area of greater Tokyo. The host business park is also expected to be a technology hub and centre of local and global innovation.
Colt DCS has also launched construction for its third data centre on its Inzai campus in Chiba, providing a further 27MW, and will be the company’s largest data centre in the country. Construction is expected to complete late in 2020.
A booming data centre market is competing for hotly contested construction resources. Japan is finalising construction and preparations for the Olympic Games and Paralympics in 2020, which are currently soaking up key trades.
A long lead (up to three years) for power, means that data centre growth in Tokyo will continue at a market constricted pace, and at a higher premium than other Asia markets.
Singapore is arguably the most mature of the "Big Four" in the Asia Pacific region for data centres. While Hong Kong is a direct competitor when it comes to organisations looking to set up headquarters in the region, Singapore has an edge with its stable geopolitical climate, supportive regulatory environment and relatively cheaper land costs.
The ease of doing business in Singapore is attractive for the world’s largest organisations across a range of sectors, who require a strategic hub in the Asia Pacific region.
Singapore's Multi-Tier Cloud Security Singapore Standard 584 also means that it has the world's first cloud security standard.
While the overall construction market has remained flat, investment in data centres has gone against the trend and has grown 10-12% year-on-year since 2015.
Whilst the Singapore data centre market remained hot during 2019, the pipeline of new projects coming on line over the last 12 months has reduced as a result of on-hold land approvals by the government. Despite this, at least 150MW of capacity is scheduled to come online over the next year.
The construction of Facebook and Google hyperscale data centres is dominating the media, but leading data centre owner operators have themselves laid largescale plans: Equinix, Digital Realty and ST Telemedia have successfully tendered for land plots to build data centres.
This is in the face of tough constraints currently being imposed by the government on land approvals, and new carbon tax penalties imposed in early 2019 on carbon emitters.
With land on the tiny island of Singapore being in short supply, we have recently seen Keppel announce that it will build one of the first data centre marinas, supporting floating modules with shared power-generation. Such barges could have 10MW of data centre capacity.
With the ongoing investments into Singapore, we expect the market conditions to remain hot throughout 2020. However, this trend is expected to shift at some point due to the restrictions on acquiring land and with the emerging markets in Asia Pacific becoming more attractive for international investors and operators.
Political and economic tensions with Japan are giving rise to an increased focus on alternative cross-border opportunities in China, with its vast market of data consumers. With this combined with the growing need for domestic cloud capacity to sustain the expanding Internet of Things and developments in AI, South Korea is attracting new data centre investments from internal and external providers.
Seoul, the capital and most densely populated data centre location in Korea, has 19 established colocation data centres, hosting 28 cloud service providers.
Korea is a pretty closed market for foreign contractors, which has an impact on data centre clients who want to manage installation and commissioning of specialist equipment via preferred vendors. Language and cultural barriers also add difficulty to doing business in Seoul.
After a slow-down in data centre growth in Seoul over the past few years, new projects are promising to stimulate the market – though active construction market conditions close 2019 as cold.
Oracle launched its first cloud data centre in Seoul in May 2019. Equinix, seeking to support and expand its domestic customers, also opened its new Seoul data centre in August.
However, land constraints in Seoul are driving developments in neighbouring regions on the outskirts of Seoul. Samsung has opened a new data centre in Chuncheon, which is located approximately 70km to the Northeast of Seoul. And with improvements in latency, some expected further afield. Naver, South Korea’s domestic web portal and local competitor to Google’s search platform, is considering a number of locations outside of Seoul to host its second data centre.
Oracle has announced plans to build its second cloud facility in Chuncheon, due to its close proximity to Seoul. Digital Realty has also announced plans for a ten storey data centre in Seoul.
With the expansion of Oracle, amid the established AWS and Microsoft cloud regions, and entries from Equinix and Digital Realty on the carrier neutral scene, South Korea looks promising to become a contested market attracting global and regional investment. Nevertheless, the current market tendering conditions for data centres is cold, albeit warming.
The new data centres opened by Oracle and Equinix will create pathways and stimulate appetite for other global providers to enter the market, with US cloud service providers rumoured to be showing real interest in 2020. However, projects are likely to focus on the peripheral regions of Seoul due to inner city land constraints.
The data centre industry in Australia is thriving and is considered to be a major growth area for capital investment over the coming years, particularly along the Eastern seaboard, in New South Wales and Victoria.
Major data centre projects are also on the horizon for Western Australia over the next five years with global players using the connectivity links between Australia and Asia.
As a whole, the data centre sector is active with investment in new facilities and the expansion of existing facilities. In many cases, infrastructure servicing existing facilities is reaching “end of life”, resulting in upgrades and optimisations to enhance efficiencies.
Data centre construction market conditions entered 2019 as hot. And existing major Australian data centre providers, such as Digital Realty, Equinix, Global Switch and Metronode, in addition to new regional providers such as AirTrunk, are continuing with expansion plans targeted at cloud business and enterprises alike.
Further afield, NextDC submitted plans for a $195m data centre in Perth comprising nine levels in a ten storey building. In a similar regional investment strategy, Equinix announced plans to expand Perth’s PE2 to capitalise on the increased sub-sea connectivity in the region.
Australia’s increased international connectivity with multiple new cable landings, in addition to second and third generation new cable landings into the East and West coasts, is contributing to the driving demand for data centre growth. Increases in big data and the outsourcing of data services is also driving demand.
The edge is still a key discussion topic in data centre circles and may drive the deployment of more modular/containerised data centres outside the hub locations. There is also the rise in demand for hyperscale facilities. The move to hyperscale makes sense for colocation providers as it gives them the ability to gain a competitive edge with economies of scale.
John Kelsall - Director, Asia
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