Asia Pacific Data Centre Trends - Q1 2024

Despite a challenging economic environment, data centres remain in focus for the commercial real estate industry in Asia Pacific, with notable market developments across the region.

This report explores key data centre investment trends and outlook for the sector in Asia Pacific, and offers insights into the data centre occupier and investment market in Australia, Hong Kong SAR, Japan, Singapore, India and Korea.

Key regional trends include:

• Investor demand for data centres is strong, with a wide range of buyers seeking stabilised assets. However, there remains a lack of stock for sale.
• Prevailing high interest rates continue to weigh on data centre investment. However, investment volume in 2024 is expected to recover from last year’s low base, driven by activity in Japan.
• In addition to increased activity by hyperscalers and more corporates moving towards a co-location approach, there has been a surge in AI-related demand since late 2023.
• Power supply, especially a lack of renewable energy, is becoming a major challenge for future data centre development.

Market highlights include:

• Australia: Industrial developers are now considering powered shell data centre developments to obtain exposure to the asset class. More data centre operators are open to this form of ownership as land and power becomes harder to procure in key markets.
• Hong Kong SAR: Foreign companies with an existing presence in the city are willing to expand and relocate with increased size, while operators continue to face a talent gap.
• Japan: Higher power, construction and Mechanical, Electrical and Plumbing (MEP) costs are pushing down cap rates. Deals in 2023 were typically concluded at a cap rate of around 4%, a level set to decline this year.
• Singapore: There is currently no news about future allocations beyond the 80MW awarded by EDB-IMDA’s pilot DC-CFA exercise last July. Limited space and constraints on power supply mean development interest is spilling over to neighbouring countries.
• India: Challenges to future development include lengthy approval processes and the rising cost of land in major cities. Although competition for labour is increasing, it is not an acute issue like in some other markets in Asia Pacific.
• Korea: New data centre developments in Greater Seoul face increasing challenges from limited power capacity and growing public opposition.