Why Southeast Asia is set to be the fastest growing data centre region in APAC
Historically, data centre development in APAC has taken place in Tier 1 markets such as Hong Kong, Singapore, Sydney and Tokyo. These markets account for most of the data centre capacity in APAC, driven by cloud providers that have deployed their infrastructure.
According to a report by Cushman & Wakefield, Southeast Asia (SEA) is one of the fastest growing markets for data centres globally. The overall APAC data centre market size will be worth US$28 billion by 2024, with SEA accounting for an estimated 13% of the region’s total market value.
A closer look at the distribution of data centres in SEA does show a disconnect between capacity and local demand. Tier 1 markets like Singapore, account for over 60% of data centre capacity in SEA despite having only less than 2% of internet users in the region.
However, with an unparalleled acceleration in digital transformation, data centre industry players are facing pressure and the need to expand beyond Tier 1 markets to meet these demands and address existing challenges. Some challenges include land and power constraints and/or increasing regulation – such as sustainability and data sovereignty regulations.
Therefore, Tier 2 markets in SEA with favourable demographics like India, Philippines, Vietnam and Thailand will be the next focus for expansion and explosive growth in APAC. Coupled with the growing appetite for all things digital, the acceleration will create additional attractions to these fast growing data centre markets.
What makes Tier 2 markets so appealing
The key drivers of data centre expansion within Tier 2 markets are twofold. Firstly, the domestic digital demands from Tier 2 markets are exponentially growing, and secondly Tier 2 markets can continue to offer resources such as lands and manpower necessary for data centre developments.
40 million internet users came online in Southeast Asia in 2020, pushing the total number to 400 million. Behind the numbers, there is a pool of young and digital savvy consumers, contributing to a dynamic e-commerce and technology industry and escalating data storage needs. From a talent standpoint, Tier 2 markets will benefit from data centres as well – the digital advancement will help upskill tech personnel and bring new technologies that can be used across other industry sectors.
Additionally, Tier 2 markets have an abundance of landmass for data centre operations to expand, allowing them the physical capabilities to potentially integrate renewable energy technology, which generally requires at least ten times more land area per unit of power produced.
What’s more, as governments in emerging markets are trying to catch up with more advanced economies, they are more open to data centre developments. For instance, Mumbai in India has become one of the most attractive investment destinations for setting up data centres, thanks to the high quality and cost effective infrastructure like stable IT power load, as well as comprehensive ecosystem to serve data.
At the same time, the rising demand for data centres is driven by the desire of cloud service providers to expand geographically, broadening their reach and offering improved performance such as reduced latency to drive data centre demand and gain first mover advantage in tier 2 markets. For example, Amazon Web Services, Google Cloud and other cloud providers have announced new cloud expansion plans in the region, which will contribute to the increasing number of data centres in tier 2 markets.