Article | Intelligent Investment

Navigating Data Centres: Seizing investment opportunities in Asia Pacific

September 24, 2024

By Lynette Lim

navigating-data-centres-seizing-investment-opportunities-in-asia-pacific_972x1296


Asia Pacific has emerged as one of the most promising regions for data centres, seeing a surge in investor interest across markets. The region saw the strongest growth of live supply from 2018 to 2023, and is forecasted to grow at a CAGR of more than 10% over the next three years.

Asia Pacific data centre sector poised for growth

Several markets in North Asia have been the focus of data centre interest, driven by scale and digitisation initiatives. Other markets such as Australia and Singapore are also favoured for their maturity in this space.

As AI and cloud adoption gains traction, the immense computing power and data storage requirements have led to burgeoning demand for data centres, as well as modifications in terms of power infrastructure, rack density and cooling solutions.

While established markets face challenges around power constraints and in most cases, land scarcity, emerging markets – even with their various obstacles, also present good opportunities for investment.

Figure 1: Developed markets have historically dominated the sector

figure1-developed-markets-have-historically-dominated-the-sector

Source: CBRE Digital Infrastructure Advisory


Several Southeast Asian markets have experienced an increase in investor interest; in particular, Malaysia, Indonesia and Thailand are expected to experience exponential growth in the data centre sector, with their capacities anticipated to more than double by 2026.

While there are significant economic benefits to be reaped from such investments, these markets are also cognisant of the potential drawbacks. For instance, the energy-intensive nature of data centres has raised concerns of a potential power supply shortage in Malaysia as electricity demand from data centres alone is expected to hit over 5,000 MW by as soon as 2035.

Figure 2: Emerging markets are gathering pace

figure2-emerging-markets-are-gathering-pace

Source: CBRE Digital Infrastructure Advisory

Each individual market poses nuanced challenges

While the asset class is highly sought after by investors, there is generally a higher barrier to entry, and each individual market has its own nuanced challenges to navigate. In some markets, the concept of data sovereignty continues to evolve and cybersecurity remains a key concern. In others, talent gaps mean that investors and operators could face issues finding qualified workers. Nonetheless, these barriers can also present an opportunity for investors to gain a first-mover advantage, especially in emerging markets. Several governments have also introduced incentives to attract investment in the digital infrastructure space.

Figure 3: Regulations and incentives relating to data centres


Emerging markets are extending fiscal incentives to attract data centre investment in a bid to establish themselves as the next data centre hub in the region.
On the other hand, established hubs typically focus on advantages such as advanced infrastructure capabilities and a deeper talent pool to attract data centre investment.

Figure 4: Incentives and investment in emerging markets

Market Examples of Incentives and Investments
Malaysia
  • Investment Tax Allowance of 100% on Capex which can be offset against up to 100% of statutory income for up to 10 years.
  • Investment into critical infrastructure to support data centres, including its RM1.65 billion investment in submarine cable network connectivity.
Indonesia
  • Up to 100% tax reduction for 5-20 years for larger investments of over US$30 billion.
  • Lower electricity prices to attract data centre operators.
Thailand 
  • Up to 8 years exemption of corporate income tax, followed by a 50% exemption for a further 1-5 years.
  • Exemption/reduction of import duties on machinery.

Demand for data centres will continue to grow

With continued government support and digitisation initiatives, coupled with trends like the proliferation of AI, cloud adoption, 5G, fintech and e-commerce, demand for data centres is expected to continue its growth trajectory in Asia Pacific.

Figure 5: Key drivers supporting data centre growth

Strategies for investors, developers and operators

Stakeholders Recommended Strategies
 Investors & Developers
  • For investors and developers looking at data centre investment opportunities across the region, a market benchmarking study and relevant deep dives will be critical to ensure the right strategy. Partnering with an experienced advisor can help investors and developers navigate the nuanced landscape – from market selection, to partner identification and site due diligence – in order to generate alpha returns as well as mitigate risks.
 Operators 
  • With fast-changing demand trends, operators need to focus on scalability, high-performance infrastructure and cooling efficiency. Partnering with industry experts will enable operators to understand how best to future-proof their facilities in the age of AI.

About CBRE Asia Pacific Consulting

CBRE’s Asia Pacific Consulting practice helps clients with complex location strategy decisions that take into account a myriad of important location factors, such as workforce strategies, locational profiling and site selections.

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