How to make the most of the Digital Infrastructure boom in APAC

Digital infrastructure has emerged as one of the most sought-after asset classes by investors, who are seeking stabilised assets and optimal returns for their investment portfolios. Forming the ‘backbone’ of the digital economy, digital infrastructure is all-encompassing, spanning cell towers, fibre optics lines and networks as well as data centres. Despite this, there remains a significant gap in digital infrastructure investment, offering untapped value on the table for investors in Asia Pacific.

The generative AI boom has led to a global seismic shift in digital infrastructure demand. Demand for AI compute and a strong digital backbone has become more critical than ever. Home to more than half of the world’s population that is largely underserved, the Asia Pacific region offers great potential for investors looking to capitalise on the sector’s growth trajectory. 

Despite the growth and mainstream adoption of technologies such as 5G, Internet of Things (IoT) and Virtual Reality, along with a consistent increase in information technology (IT) spending, a significant investment gap and opportunity exists for digital infrastructure development in Asia Pacific. For example, the investment gap in the region is anticipated to reach US$512 billion by 2040 (Figure 1).

Figure 1: Digital Infrastructure landscape in Asia Pacific

Investors are actively deploying capital across the region in areas such as data centre parks and assets, as well as tower infrastructure (Figure 2). Examples include the acquisition of a 20% stake in Singtel’s regional data centre business (valued at US$4 billion) by KKR, and Connexa’s acquisition of local telco provider 2degrees’ tower assets for US$661 million across New Zealand.

Figure 2: Notable digital infrastructure-related market developments

S/N	Source	Date	Amount (US$)	Description	Link
1.	KKR-Singtel Consortium	Jun 2024	US$1.3 Billion	ST Telemedia Global Data Centres (STT GDC) raises US$1.3 billion from KKR-led Consortium with Singtel.	Source
2.	Digital Core REIT	Mar 2024	US$103 Million	Digital Core REIT acquired an additional 10% interest in a freehold data centre in Osaka, Japan from Mitsubishi Corporation.	Source
3.	Keppel & Mitsui	Mar 2024	US$1.1 Billion	Keppel partnered with Mitsui Fudosan to establish a US$1.1 billion Keppel Data Centre Fund II (KDCF II) for the proposed forward purchase/acquisition of a purpose-built data centre under development in Western Tokyo.	Source
4.	PGIM	Jan 2024	US$3 Billion	PGIM plans to invest as much as US$3 billion in the global data centre sector including in major Asia Pacific markets including Tokyo and Seoul.	Source
5.	Seraya Partners	Dec 2023	US$800 Million	Seraya Partners closed the fundraising of an $800 million fund called the Asia Infrastructure Fund for Digital Infrastructure and Energy Transition investments.	Source
6.	KKR	Sep 2023	US$800 Million	KKR acquired a 20% stake in Singtel’s regional data centre business, valued at US$4 billion.	Source
7.	Bain Capital	Aug 2023	US$3.16 Billion	Chinese data centre operator Chindata is to be taken private by existing investor Bain Capital in a US$3.16 billion merger agreement.	Source
8.	Chindata	Jun 2023	US$5 Billion	Chindata will construct a 500 MW data centre campus in Datong, North China’s Shanxi province, more than half of which will be powered by renewables.	Source
9.	Connexa	Jun 2023	US$661 Million	Connexa acquired local telco provider 2degrees’ tower assets throughout New Zealand for US$661 million, expanding its network to more than 2,350 towers.	Source
10.	Vantage Data Centers	May 2023	US$3 Billion	Vantage Data Centers announced it was investing US$3 billion in a new data centre campus in Cyberjaya, Malaysia.	Source
11.	CyrusOne & KEPCO	May 2023	US$7 Billion	CyrusOne and KEPCO formed a US$7 billion partnership in Japan, with plans for a 900-MW portfolio. CyrusOne is a newcomer to Japan.	Source
12.	Frontier Tower Associates	Mar 2023	US$220 Million	Frontier Tower Associates Philippines snapped up a portfolio of 1,012 towers from local telecoms provider PLDT.	Source
13.	Area Group	Jan 2023	Undisclosed	PE firm Area Group acquired 150 acres of freehold industrial-zoned land parcel within the Delapan Special Border Economic Zone (Delapan SBEZ) in the northern Malaysian state of Kedah, for developing a new data centre park.	Source

With sustained momentum growth fuelled by strong institutional investment and robust underlying fundamentals, data centres continue to be an alluring investment opportunity and attract the bulk of digital infrastructure investment. Furthermore, the rapid adoption and advancement of AI – and the computing and data requirements around this surge – is expected to drive significant growth in data centre demand.

The inherent strength and ‘customer stickiness’ of the asset class, higher cap rates, non-cyclical growth nature, long-term stable returns as well as diversified income with rental growth potential are also strong draws for the data centre sector.

At present, investor appetite is strongest in higher-yielding opportunistic and value-add market segments. While investors would typically adopt a more cautious approach, there is significant value both ‘up’ and ‘down’ the value stack where investors stand to gain (Figure 3).

Figure 3: Favourability of data centres across the value stack

Markets in Asia Pacific are at varying junctures of digital advancement and digital infrastructure deployment. These differences are driven by factors such as the digital connectivity landscape, digitalisation policies and data centre development. CBRE classifies these markets into three buckets: Core, Peripheral and Emerging (Figure 4).

Figure 4: Classification of key Asia Pacific markets for digital infrastructure

• Core Markets
Regarded as the epicentre and inception points for the digital infrastructure revolution in Asia Pacific. These markets are highly mature and at par with Tier-1 markets in other regions. These include Singapore, Tokyo, Hong Kong and Sydney. All of these markets consist of data centres with well over a half-GW of live power capacity (despite tighter planning constraints in Singapore).


• Peripheral Markets
Peripheral markets are the first markets that benefitted from a spillover from the core markets. These are also markets which by virtue of their size are at the crossroads of leapfrogging into becoming core markets in the near future. Examples include Osaka, Kuala Lumpur, Shanghai and Mumbai.


• Emerging Markets
These are markets that hold immense potential and are on the radar of investors as they seek to be early-movers in the space and capitalise on new opportunities. Examples include Johor, Batam, Jakarta and Bangkok.

Core markets by virtue of their size and maturity have gained much traction over the past few years. To further capitalise on this, investors, developers and occupiers familiar with the asset class are now shifting beyond the horizon to peripheral and emerging markets. As newer markets continue to expand alongside increasing demand for digital infrastructure, the Asia Pacific region presents far more opportunities of unprecedented scale.

While strategies are aplenty, a few stand out. Once interest rates start to normalise, we expect that investors and operators will begin to double down on their investments in the sector with various modes of capital deployment for investors to participate in the space.
In our view, three key trends to monitor are the establishment of more creative structures and capital sourcing, increased deal flow and M&A activity as well as the continued prominence of established markets (Figure 5). 

Figure 5: Key trends to watch