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Concrete Analysis | Hong Kong data centres represent a good investment opportunity, as demand for data grows amid lockdown measures, 5G roll-out

  • Data centre rents will continue to go up by 4 per cent in 2020
  • Data demand from the introduction of 5G will exponentially grow underlying need for storing and processing data

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The data centre market has a strong outlook amid the Covid-19 pandemic and is likely to attract more investors looking for an upside. Photo: Xiaomei Chen

The current pandemic has increased demand for data services. The closure of schools, work-from-home policies and social distancing are placing a greater demand on web-based platforms that support online meetings and classes.

And while Hong Kong’s real-estate market as a whole faces price and rent corrections, the data centre market has a strong outlook and is likely to attract more investors looking for an upside. Data centre rents will continue to go up by 4 per cent in 2020, and yields will stay in the 3.5 per cent to 4 per cent range, which is more attractive compared with other sectors.

More interestingly, data demand from the introduction of fifth-generation wireless internet coverage in Hong Kong will exponentially grow the underlying need for storing and processing data. As such, data centre and cloud services operators are actively looking for more space in Hong Kong.

To capture this opportunity, investors can choose between strata title industrial buildings, en bloc industrial buildings or redevelopment.

Strata title industrial buildings can be repurposed for data centre use by obtaining a special waiver, which is handled by the tenant. As fitout and basic infrastructure such as chillers, power substations and generators are the tenant’s obligation, a landlord’s required investment is minimal. However, obtaining licences for basic infrastructure location from other strata title owners, or property management companies, is a landlord’s obligation.

Given the significant initial capital expenditure required from tenants and operators, these buildings require a secured lease of at least 10 years. However, not many individual landlords are willing to, or are able to, accommodate such a long-term tenancy.

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