TL;DR:
- Global investors like KKR & Co. and Bain Capital are targeting Asia’s data center market.
- Asia experiences rising demand due to cloud service expansion by tech giants and the AI wave.
- Cushman & Wakefield predicts a 25% annual growth in Southeast and North Asia through 2028.
- KKR plans potential equity investments of $1 billion in Asia-Pacific data centers.
- PGIM Real Estate intends to invest up to $3 billion in global data centers, focusing on Asia.
- Challenges include navigating diverse regulations and enhancing cooling systems.
- China and Singapore have made regulatory adjustments to accommodate data center growth.
- Warburg Pincus expands its presence in Asia, investing nearly $1 billion in the sector.
- Cooling system improvements are crucial as GPUs gain prominence in data center operations.
- Government regulations around data privacy and sustainability are evolving across markets.
Main AI News:
Asia is rapidly becoming a focal point for global investors eyeing the burgeoning data center sector. KKR & Co. and Bain Capital are among the big names placing their bets on Asia’s escalating computing and data storage demands, driven by the artificial intelligence revolution.
Similar to the United States, Asia is witnessing an upsurge in the demand for data centers. Industry giants such as Amazon.com Inc. and Alphabet Inc.’s Google are amplifying their cloud services, while the recent wave of generative AI technology is amplifying data and capacity requirements. Furthermore, the region’s growing population is fueling the need for expanded storage capacity.
According to data from Cushman & Wakefield, the demand in Southeast Asia and North Asia is poised to grow by approximately 25% annually through 2028, compared to 14% in the United States.
Udhay Mathialagan, global head of Brookfield Asset Management Ltd.’s data center business, stated, “It’s the US first, and then the trend tends to follow soon after into Europe and with a little time lag into Asia Pacific.” Regardless of its diversity, one commonality in Asia is the ubiquity of online presence, necessitating robust connectivity and top-tier data centers.
Investors have already taken action. Bain Capital’s announcement of a deal in August to privatize Beijing-based data center firm Chindata Group Holdings, with an implied equity value of $3.2 billion, underscores the region’s attractiveness. In September, KKR & Co. agreed to acquire a 20% stake in Singapore Telecommunications Ltd.’s regional data center business for about $800 million, while Blackstone Inc. introduced its wholly owned data center platform in Asia in November 2022.
Including the Singtel platform, KKR envisions potential equity investments of up to $1 billion in Asia-Pacific data center projects in the coming years, according to Projesh Banerjea, the firm’s director of infrastructure. These investments are expected to deliver returns in line with KKR’s infrastructure strategy, ranging from mid-to-high teens.
The belief is that Asia will ultimately claim a larger share of the market. Currently, about 29% of hyperscale cloud revenue in the industry is generated in Asia Pacific, compared to 49% in the United States. By 2028, Asia’s share is projected to rise to as much as 33%, equating to $173 billion.
“This is a super-easy investment story,” remarked Morgan Laughlin, global head of data center investments at PGIM Real Estate. “You have demand, which is growing with no end in sight, and you’ve got supply becoming increasingly constrained with no solution in sight.”
PGIM plans to invest up to $3 billion in the global data center sector over the next three years, including major Asia-Pacific markets such as Tokyo and Seoul.
Bain Capital also has plans to continue investing in China and Southeast Asian markets while exploring opportunities in developed regions elsewhere in Asia, according to Jonathan Zhu, partner and co-head of the firm’s Asia private equity business. He highlighted that the entire Asia market will continue to grow, driven by cloud and AI, intensifying competition for assets and resources.
Nevertheless, there are challenges. Developing data centers is a time-consuming and intricate process, demanding expertise in real estate, technology, local regulations, and environmental considerations. The highly fragmented nature of Asia’s market further complicates navigation.
Ellen Ng, co-head of Asia real estate at Warburg Pincus, pointed out, “There is no such thing as one Asia, and each country has its own regulations, so we see more single-country operators than pan-regional ones.” Offering products and services across multiple markets is crucial, but it poses significant challenges.
China has hinted at easing cross-border data controls while Singapore has lifted its moratorium on data center construction but remains selective in awarding projects. Warburg Pincus, through its portfolio Princeton Digital Group, has expanded to Malaysia and Indonesia as part of its ESG strategy, investing nearly $1 billion in the sector in Asia.
Data centers are also grappling with the need to enhance their cooling systems due to the increased usage of graphics processing units (GPUs) for handling complex computation demands. GPUs consume more power and emit more heat than central processing units (CPUs), necessitating improvements in cooling infrastructure.
A chilling incident in October, where a cooling system fault at data center operator Equinix Inc. affected 2.5 million payment and ATM transactions, underscores the importance of robust cooling systems. “Risk-wise, government regulations around data privacy, national data sovereignty, and sustainability are building out across most markets,” warned Glen Duncan, Asia-Pacific director of data center research at Jones Lang LaSalle Inc. Failing to stay abreast of these changes could leave investors and operators at a disadvantage.
Conclusion:
Asia’s data center market is attracting substantial investments due to the increasing demand for data storage driven by AI and cloud services. This trend reflects a strategic move by global investors to tap into the region’s growth potential. However, investors must contend with regulatory complexities and the need to enhance infrastructure to maintain competitiveness in this rapidly evolving market.
