Hong Kong also ranked the fourth most attractive data center location in APAC

HONG KONG, CHINA - Media OutReach - 31 August 2020 - Investment into data centers in Asia Pacific (APAC) is on the rise with the total transaction volume between 2018 and 2020 totalling USD 5.70 billion, 7.2x that between 2015 and 2017. Despite the pandemic outbreak, investment activity in the sector remains relatively robust with the total transaction volume in APAC over the first eight months of 2020 reaching USD 1.43 billion, about 56% of the 2019 level.

Highly sought after by investors and owner-operators, Hong Kong accounted for 54% of total investment into the APAC data center market in 2020 to date. Among the most notable transactions, China Mobile secured an industrial government site for HKD 5.60 billion in July. The record high A.V. of HKD 5,967 per sq ft was 56% higher than the closest bid; demonstrating the eagerness of the buyer to secure a data center site amidst limited supply.

Hong Kong is an ideal data center location. According to the latest research by Cushman & Wakefield, the city ranked the fourth most attractive data center location in APAC, trailing Singapore, Sydney and Tokyo. Hong Kong ranked highest in terms of low tax rate and low climate risks and ranked in the middle in the categories of fiber connectivity, market maturity, and electricity costs. However, it scored poorly on its high real estate costs.

As of end-2Q20, total data center stock in Hong Kong amounted to 7.9 million sq ft, of which 80% was dominated by 10 operators including the two largest local operators -- SUNeVision and PCCW Solutions (which account for 31% of the market area). International operators collectively occupy around 30% and Cushman & Wakefield expects the proportion of these non-local operators in the market will continue to increase over the near-term due to their pre-commitments of new projects in the supply pipeline.

Over the next four years, a combined 4.2 million sq ft of supply will enter the data center market. "Despite a 50% increase over the existing 7.9 million sq ft stock, supply will remain tight as 82% of the upcoming developments have already been taken up by owner-operators and tenant operators," said Mr Eric Chong, Cushman & Wakefield's Associate Director of Research, Hong Kong.

"Existing data center demand is supported by banking & finance, insurance, and telecom operators. We expect future demand to be largely driven by leading global cloud service providers such as AWS, Microsoft Azure, Google Cloud, Tencent Cloud, and Alibaba Cloud," Eric added. "The growing importance of Internet of Things (IoT) applications, the impending 5G network, and fast adoption rates of cloud computing as well as the post-COVID-19 'new' normal are the four major factors driving the surge in demand for cloud storage". Based on government statistics, 90% of corporates in the Finance, Insurance, Real Estate, and Business Services (FIREBS) sectors have already adapted cloud computing, a significant increase from 57% in 2015.

Power shortages, however, are a major constraint on data center development. The existing 11kV power supply network cannot meet the power demand of hyperscale data centers, which require a minimum of 20MVA + 20MVA. It usually takes power companies about three to four years to provide the additional power supply which creates a gap of 1.5 to two years between the target commencement date of data center operations and delivery of the necessary power supply.

Going forward, Cushman & Wakefield recommends the Hong Kong government and power companies to swiftly investigate and coordinate on how to increase power supply capacity and shorten power delivery timelines to ensure the infrastructure is in place for future data center growth.

"To maintain the city's data center market competitiveness, the government should consider allocating more land lots for data center use to satisfy surging demand. Another consideration is to standardize land premium rates for lease modification applications to give investors and owner-operators a predictable cost and timeline for data center redevelopment projects. The government should also consider empowering a centralized government unit to facilitate and streamline the application and approval process of the works required for data center developments currently handled by various government departments," concluded Mr John Siu, Cushman & Wakefield's Managing Director, Hong Kong.