CapitaLand Investment (CLI) has launched its latest research paper on investment strategies for Asia Pacific’s (APAC) data centre industry as part of its ‘Perspectives’ research series.
Leveraging insights from CLI’s expertise on the ground, the research paper highlights the demand drivers behind the rapid growth of data centres in the region and strategic investment considerations for investors.
The paper also includes a case study on navigating India’s data centre sector.
“Digitalisation is a global megatrend driving the growth of data centres,” said Michelle Lee, CLI’s Managing Director, Private Funds (Data Centre). “With the data centre sector’s strong secular tailwinds, 97% of institutional investors plan to increase their capital allocation into the sector, particularly in Asia Pacific.
“As data centres are more resilient, allocation to this asset class can be an integral part of investors’ portfolio diversification strategy,” added Lee.
“CLI has accelerated our growth in the data centre sector, adding 22 data centres since 2021. Today, we have 27 data centres with about US$4.5 billion assets under management and more than 800MW in gross power across eight countries globally,” said Lee.
“CLI has vertically integrated data centre capabilities spanning across design, development, sales and operations. With data centre domain capabilities, combined with our deep market knowledge, deal-sourcing and investment network in Asia, we are well-positioned to partner with investors to tap into the wealth of opportunities in the sector.”
APAC as a strong growth market
While cloud computing has been the primary driver for data centre demand, the rise of Artificial Intelligence (AI) is fuelling more explosive growth.
The revolution in the scale at which data is being used and managed is fundamentally a global phenomenon, but nowhere is it unfolding as rapidly as in APAC markets. On a population-per-MW basis, APAC markets are underserved compared to regions such as EMEA and North America.
APAC economies are not only growing faster, but the region’s enormous population and swelling internet user base also cement its status as a highly attractive destination for data centre investment. Its Internet user base has grown seven-fold since 2005, compared to the growth of 1.9x in the Americas and 1.8x in Europe over the same period.
Going forward, APAC markets should continue to lead, as Internet adoption further increases given the lower penetration rates in the region.
Data centre transactions in APAC rose about 2.4x to approximately US$22 billion from 2019 to 2023, compared to the preceding five years, even as markets generally stagnated during the COVID-19 pandemic.
While hyperscalers continue to drive data centre demand, APAC colocation market is also expected to double in size to US$52 billion by 2026, becoming the world’s largest colocation data centre market.
Key data centre markets in APAC
Tokyo, Osaka, Seoul, Singapore and Sydney are key developed DC markets in APAC. These markets have achieved scale and are important data centre hubs in the region. Beijing and Shanghai also show promise due to China’s large population, growing digital services sectors, strong government support and robust long-term economic prospects.
Increasing demand for data centre in India
Highlighting India as a hotspot for data centre investment, Sanjeev Dasgupta, CLI’s CEO for India, said: “India’s data centre industry has seen increasing interest from institutional investors and has a long runway for further growth. India has the world’s second-highest number of mobile subscribers and one of the fastest-growing data consumption per user rates.
“The government’s digitalisation drive, data localisation regulation as well as the growth of cloud and AI will generate more demand for data centre capacity,” added Dasgupta. “With CLI’s 30 years of experience in India, we have the capabilities and a deep understanding of the local market. We have a dedicated team of data centre experts in India and are currently developing four data centres across the key markets of Mumbai, Bengaluru, Chennai and Hyderabad with a total gross power of 244MW.”
The seven major cities in India – Mumbai, Bengaluru, Chennai, Hyderabad, Delhi NCR, Pune and Kolkata – are the focal points for new data centre development, offering strategic locations with proximity to key business centres. Mumbai stands out as the preeminent hub, hosting more than half of the country’s data centre capacity with the other major cities mentioned developing strongly.
Opportunities and strategic considerations
Different data centre models offer a spectrum of options for investors, catering to different preferences and risk appetites. However, the lack of stabilised data centres available for sale in APAC means the most promising opportunities for investors lie in developing new data centres – a strategy that can both satisfy new demand and yield higher returns.
Power availability has taken centre stage as a crucial determinant for data centre locations. There is also a growing emphasis on sustainability. Increasingly, data centre users and savvy operators are seeking to reduce their carbon footprints by being more energy-efficient and tapping renewable energy sources.
Investors should also be mindful of the geopolitical, regulatory and technological risks associated with data centre investments. It is therefore crucial for investors to collaborate with data centre partners who have a strong network, local expertise and specialist domain knowledge.
