Asia Pacific Data Centre Trends & Opportunities

The Asia Pacific data centre sector has undergone a significant transformation in recent years, evolving from what was formerly regarded as a mere piece of infrastructure to a highly sought-after real estate asset at the cutting edge of technology.

The Artificial Intelligence (AI) and cloud services boom is driving robust demand for both colocation and hyperscale data centres across Asia Pacific, stirring interest from real estate investors keen to capitalise on this rapid expansion.

This report explores the key data centre investment trends, opportunities and outlook for the sector in Asia Pacific, and offers insights into the data centre occupier and investment markets in Australia, Hong Kong SAR, India, Japan, Korea, Mainland China, Singapore and Southeast Asia.

Key regional trends include:

• Investor confidence in data centres is expected to strengthen over the remainder of the decade. Strong demand and solid underlying fundamentals fuelled by AI and cloud services growth will provide a robust foundation for investors to build scale within the Asia Pacific data centre market.
• Yield stability will continue to drive institutional investment into the sector, with investors drawn to steady cash flows and attractive risk-adjusted yields. Data centres offer some of the most attractive income streams in the current landscape, with the lengthy lease tenures and strong credit covenants viewed as especially attractive by investors.
• With many existing data centres along with numerous schemes due to come on stream in the near term built and designed in the pre-AI era, there is projected to be a severe shortage of AI-ready data centre space within the next few years.
• Insufficient power supply, elevated construction costs and supply chain constraints continue to be challenges for data centre development.

Market highlights include:

• Australia: With more operators undertaking greenfield development, the market might become overcrowded and experience some consolidation. AI demand could benefit Melbourne relatively more than Sydney as the former has more industrial land available for AI development.
• Hong Kong SAR: IT service providers, e-commerce, and banking firms from mainland China and Hong Kong SAR looking to set up digital infrastructure are currently the most active groups in taking up data centre space. Vacancy is expected to gradually ease in the next 12- 18 months, while rents may see some upward movement.
• India: Data centre operators are expanding their capacity to match increasing demand from hyperscalers and corporates. These operators are venturing into markets with more corporate demand, such as Bangalore. Due to its excellent connectivity to submarine cables, Chennai is attracting a strong supply pipeline from companies that require good international traffic and lower latency.
• Japan: Rents for all types of data centres increased from 2020-2023. However, as the supply cycle peaked and operators slowed down rental increases to attract users, rental rates in 2024 remained flat on a y-o-y basis; a trend likely to continue into 2025. Direct investment from foreign capital remains strong, with the trend likely to continue as institutional investors look to recycle capital.
• Korea: Land prices have increased substantially due to limited land lots for data centre development. Investors and end-users are competing to secure powered land.
• Mainland China: In the near term, operators focused on filling vacant space will keep pricing competitive. While the vacancy rate is expected to drop, the pace of the rental recovery will be slow due to the large volume of existing supply.
• Singapore: Given strong demand and supply constraints, local data centre utilisation is high, which could exert further upward pressure on rental rates. Amid limited opportunities, investors and operators looking to expand in Southeast Asia will continue to explore nearby markets, especially those in proximity such as Malaysia (Johor) and Thailand.
• Southeast Asia: While Malaysia and Indonesia have been the data centre investment hotspots of Southeast Asia, interest in Thailand is growing rapidly upon active expansion from hyperscalers. The removal of the foreign ownership cap in July 2024 is expected to spur investment demand in Vietnam in the medium term.