Nicholas Spiro

The View | Why Asia’s data centres are a gold mine lurking in a minefield

While many investors would love to gain exposure to Asia’s data centre sector, few are willing or able to deal with its associated risks

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A staff member checks equipment at a China Mobile data centre in southwest Guizhou province on May 24, 2022. Data centres hold a strong allure for investors in Asia, but they come with their own set of unique risks and infrastructure demands. Photo: Xinhua

Nicholas Spiro

Published: 4:30pm, 8 Jul 2024Updated: 5:23pm, 8 Jul 2024

Asia’s commercial property investment market is going through a rough patch. The persistence of high interest rates and the pandemic-induced deterioration in sentiment towards the office sector continue to weigh on transaction activity.

Even so, there are bright spots. One of them is the burgeoning data centre market. In the first quarter of this year, transaction volumes in the sector reached US$1.7 billion, 81 per cent higher than in the previous quarter and 80 per cent of investment activity for the whole of 2023, according to data from Savills.

This is not surprising given the powerful tailwinds enjoyed by the warehouse-like facilities that power all kinds of online products and services. Explosive growth during the past decade has led to rapid development of colocation and hyperscale data centres with ever-increasing power requirements.

The emergence of generative artificial intelligence (AI), especially the launch of ChatGPT at the end of 2022, has turbocharged demand and reshaped the data centre landscape as the transformational technology drives development of new AI-specialised facilities.

Asia is fertile ground for the development of data centres. With its unique blend of large mature and emerging markets and fast-growing digital economies, the region accounts for three of the world’s 10 largest data centre markets in terms of operational capacity, with Beijing and Shanghai in the top five, according to data from Cushman & Wakefield.

Asian cities figure even more prominently in the global data centre development pipeline, which includes facilities currently under construction as well as those in the planning stage. Mumbai, Tokyo, Sydney and Kuala Lumpur are among several cities experiencing rapid growth. Malaysia is now Asia’s fastest-growing data centre market.