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Hong Kong property
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Why rising demand for data centres will not rescue Hong Kong office buildings with high vacancy rates

  • Conversion of office buildings in Hong Kong into data centres for large tech firms is ‘quite rare and becoming rarer’, PGIM Real Estate executive says
  • However, with data centres becoming their own investment segment, those who have allocated capital for such investments are likely to reap gains

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Hong Kong’s Central business district. At least 100 ageing office buildings - built more than 20 years ago - in the city need to be refurbished to unlock their rental potential, JLL says. Photo: Dickson Lee
Cheryl Arcibal
Rising demand for data centres is unlikely to provide relief for Hong Kong landlords and asset owners looking to convert their empty office spaces into industrial property, according to US asset manager PGIM Real Estate.
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Investment in data centres has increased in recent years, spurred by exponential growth in the artificial intelligence (AI) sector and the likes of technology firms such as Alibaba Group Holding, which owns the Post, Microsoft Corp and Google racing to develop their own AI applications, said Morgan Laughlin, PGIM’s managing director and global head of data centre investments.

Almost all of the 90 institutional investors that Laughlin has met in the past three years expressed interest in data centres, but only 20 per cent have actual investment in the sector, a scenario that could lead to tremendous growth in investment in the segment, he said.

Locally, demand for AI tools is also likely to expand. Nearly three-quarters of Hong Kong’s businesses feel they are ready to incorporate new technologies including AI by the end of next year, rising to 90 per cent by the next decade, according to an HSBC survey released last month.

Moreover, by the end of March, Hong Kong’s prime office vacancy rates had risen to 13.1 per cent from 12.9 per cent in February, according to JLL.

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And while a positive outlook for data centres has led to the redevelopment of office buildings around the world, Laughlin said this would not be practical for many office towers in Hong Kong.

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