Surge in data centres

A surge in remote working during the COVID-19 pandemic has driven significant demand for data centre capacity, says Kate Bailey, CBRE’s associate director of research.

 

Three key takeaways: Sydney recorded a 76% growth in IT capacity over the last year 30% of Asia Pacific investors are looking to purchase data centres this year Just 1.5% of total Asia Pacific industrial real estate investment volume were data centres between 2015 and 2019.

 

The Internet of Things, 5G, e-commerce, big data and cloud computing continue to fuel data centre expansion in Asia Pacific.

Global mobile data traffic grew by 49 per cent during 2019 and is projected to expand by 31 per cent each year until 2025, according to Ericsson.

“Growth in the Internet of Things, working from home, online gaming and social media has increased the requirement for data storage in Australia,” explains Bailey.

“With more people working from home, there is an increase in demand for cloud storage, which is driving space demand in data centres.”

CBRE’s latest report, Asia Pacific Data Centre Trends, classifies four Asia Pacific cities as ‘tier one data centre markets: Sydney, Tokyo, Hong Kong and Singapore.

All four recorded expansion in total IT capacity over the past financial year, but Sydney recorded the strongest growth at 76 per cent. CBRE attributes this to its “attractive location for acquisition” and a development time of six to eight months less than other tier one markets.

While the government comprises the bulk of demand in Sydney, growth is occurring across numerous verticals, including financial services, internet and technology, healthcare and education.

CBRE says 30 per cent of investors in the region are considering purchasing data centres this year, a substantial increase on the 18 per cent in 2019

Investors’ emerging preference for assets providing stable income streams is also expected to drive interest in data centres, which are currently one of the best performing assets in the United States’ REIT market with total returns of around 19.3 per cent in the first five months of 2020.

Cameron Grier, CBRE’s regional director for industrial and logistics says there is currently “huge demand” for sites, “with large requirements from data centre groups seeking opportunities in Sydney and Melbourne”.

Despite rising investor interest, direct investment remains limited due to a lack of investable stock and relatively tight regulatory restrictions. Data centres accounted for just 1.5 per cent of total Asia Pacific industrial real estate investment volume between 2015 and 2019.