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Asia Pacific has the world's fastest-growing data center market.

The demand for data centers in Hong Kong continues to grow. Sale in Qatar | For Sale in Qatar

Hong Kong, Singapore, Sydney, and Tokyo are the chosen locations for data center investment in Asia Pacific, according to global property consultancy JLL, due to their strong infrastructure, connectivity, and relative ease of doing business. With the rising demand for data storage, more businesses are opting to rent a portion of a facility rather than purchase one. As a result of this demand, Asia Pacific revenue for shared or colocation data centers is projected to surpass that of the United States, increasing to 40% of global revenue by 2020.


Asia Pacific is experiencing a surge in data produced from various digital products and services, owing to the region's rapid urban population growth and adoption of e-commerce. Businesses are increasingly storing their data on cloud storage to cope with the volume of data. Leading cloud providers such as Google, Amazon, Microsoft, and Alibaba are vying to expand their cloud zones across Asia Pacific, with public cloud spending in the region expected to reach $15 billion in 2018.


"As the cloud market matures, businesses must rapidly develop infrastructure resources to keep up," says Bob Tan, JLL Asia Pacific's Director of Alternatives. "We're seeing more investors trying to get into or increase their exposure to the data center sector because it provides diversification and typically has higher yields than conventional asset classes like office or retail."


Raymond Fung, JLL's Regional Director of Capital Markets in Hong Kong, said, "Hong Kong has remained a focal point for North Asian integration. Cloud providers, such as Amazon Web Services (AWS) and Microsoft's Azure preparations, have expanded their colocation operations.


In this sector, the Chinese behemoth 'BAT' has also been involved. A 2.74-hectare site in Tseung Kwan O was recently released by the government, with bids due by the end of 2018. It has a floor area of 1 million square feet and a total capacity of up to 200 megawatts. We anticipate that this would pique people's interest. In the short term, we foresee some upward pressure on data center pricing in Hong Kong."


Known investors and operators in Asia Pacific are looking beyond the traditional hotspots of Singapore, Hong Kong, Sydney, and Tokyo, according to a new JLL survey.


Mr. Tan continues, "Investors have traditionally favored these cities because of their strong infrastructure, connectivity, and relative ease of doing business. Cities in China, India, and Indonesia, while still important markets, are emerging hotspots because of their large populations, high Internet penetration rates, and social media activity. Data privacy and cybersecurity legislation in these markets has compelled users to migrate to on-shore data centers in recent years, fueling demand."


China's demand for colocation space, which is already the world's fastest growing data center market, is being driven by the country's rapid fintech expansion, digital transformation, and dependence on big data analytics, according to the study. Tier-two Chinese cities are expected to attract interest due to the availability of land and electricity, lower operating costs, and improved network and support infrastructure, according to JLL.


The report does point out, however, that data centers are a specific asset class, and that market penetration remains difficult due to a lack of professional skills and experience in this sector.


"Given the nature of this industry, many investors seek an experienced partner who can fulfill stringent service level obligations, as well as troubleshoot, maintain equipment, and control energy costs," Mr. Tan explains. "Because obtaining these skillsets organically is difficult, most investors have sought local partners through co-investments or joint ventures, while others have acquired local platforms to grow more quickly."


Build-to-suit data centers and sale-and-leaseback of existing facilities are two other options for gaining visibility. In the first example, investors work with the operator early on to design a new structure that meets their needs. The second scenario involves investors purchasing existing data centers directly from the operator or end-user, but giving them full operational control.


Mr. Tan predicts that data centers will continue to be high on investors' wish lists in the future. "We believe that Asia Pacific's prospects will continue to improve, with substantial capital focusing on emerging markets. These destinations have high consumer demand and solid growth prospects due to their wide market size and potential."

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