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After more than 20 years in the data centre space, Australian property group Lendlease has embarked on a US$1bn joint venture to develop a new wave of data centres across Asia Pacific.
First announced in June, Lendlease and an unnamed institutional investor have set out to assemble a parcel of data facilities across Australia, China, Japan, Malaysia and Singapore.
Data centres house computer servers and other IT hardware, storing and processing vast quantities of data for anything digital, whether it’s social media or e-commerce.
The appetite for data has grown rapidly and shows no signs of slowing down thanks to cloud computing, video and music streaming, Internet of Things (IoT), smart cities and more.
Internet users in the APAC region jumped 10% year-on-year between 2016 and 2018, while the number of active mobile social media users leapt 27% YOY, according to We Are Social and Hootsuite.
“With mature and expanding economies, Asia is expected to show exponential growth in data usage,” a Lendlease spokesperson said.
“Data centres are becoming an increasingly important part of business operations as well as mainstream real estate asset class.”
The strategy can buy completed properties, however a Lendlease spokesperson told APAC Real Estate that the majority of projects would be developments. Lendlease will fund 20% of the joint venture, while the investment partner will fund the remaining 80%.
The spokesperson said the JV was reviewing numerous opportunities in its target markets, but was unable to disclose information about its pipeline as it was confidential.
Having worked on about 30 data centre projects worldwide, the new JV is seen as a strategic fit for the company’s broader data infrastructure business and an extension to its Asia telco tower strategy.
“This partnership leverages our integrated platform and tenant relationships with MNCs, telco players, internet service providers and our extensive experience and expertise in data infrastructure projects, where we have project managed, designed and built data centres around the world,” the spokesperson said.
The partnership comes as the data centre asset class continues to gain traction throughout the region.
Asia Pacific is set to overtake the US in colocation data centre revenue by 2020, becoming the world’s largest market for colocation services, according to JLL and Structured Research.
A colocation data centre means multiple companies share space in the building, while hyperscale data centres typically serve a single occupier, usually bigger players like Amazon, Microsoft and Google.
New facilities will need to be built to keep up with demand, and Research and Markets estimates the region’s data centre construction market will grow from US$10bn in 2018 to US$23bn by 2027, representing a compound annual growth rate of 10.2%.
Much of that new development will go to Asia Pacific’s primary or tier 1 data centre markets: Singapore, Hong Kong, Sydney and Tokyo.
Singapore, the region’s largest data centre market, offered 359.8 megawatts (MW) of total capacity during the first quarter of this year and has an additional 177.2 MW of new supply on the way by 2021, according to CBRE.
The market has seen the likes of Facebook committing to building a US$1bn data centre in Singapore in 2018, its first in Asia. Google also announced plans for a third data facility worth US$350m in the city last year.
Supply is on the rise in the other main markets too. Tokyo will almost double its current capacity of 225MW between 2019 and 2021, while Sydney will develop a further 97.4MW during that period.
These locations have their challenges despite their popularity with occupiers, developers and investors.
There are strict land allocation policies in place in Singapore, while Hong Kong has limited greenfield development opportunities due to tight land supply. In Tokyo, data centre development is often restricted by power supply issues.
Investors and occupiers are betting on emerging markets as well. Tier 2 data centre markets such as Mumbai and Jakarta will more than double their current capacities to 241MW and 120.2MW over the next three years, respectively, CBRE says.
Governmental bodies are also introducing initiatives to accelerate data centre development across the region.
The Malaysian government has supported data centre development under guidance of the Malaysia Digital Economy Corporation, while the Singaporean government has built a data centre park called Tanjong Kling, where multinational companies can establish their headquarters and data centres.