Asia Pacific to need USD $116.2 billion for data centres

The Asia Pacific data centre sector is projected to require approximately USD $116.2 billion in investment over the next five to seven years to meet growing demand, according to a new report by Cushman & Wakefield.

The H2 2024 Asia Pacific Data Centre Market Update from Cushman & Wakefield has identified that the existing pipeline of colocation projects currently under construction or in late-stage planning totals 12,452 megawatts (MW). This significant pipeline is estimated to generate over USD $14.9 billion in annual colocation rent and potentially achieve a yield-on-cost ratio of nearly 13% for developers.

Pritesh Swamy, Head of Research & Insights, Data Centre Group, Asia Pacific at Cushman & Wakefield, commented, "Demand for the sector continues to grow – the Asia Pacific development pipeline is already three times greater than existing operational capacity and as demand for cloud, AI, and large learning machine models increase, the CAPEX requirements continue to grow in scale." He also noted, "The investment potential of the sector has well and truly captured the attention of investors, as evidenced by the sector's increasing share of annual real estate investment volumes."

The report further highlights that five markets—Japan, India, Australia, the Chinese mainland, and Malaysia—account for more than 80% of the 12.45 gigawatts (GW) development pipeline. At the city level, Tokyo leads with the strongest pipeline at 1,656 MW, followed by Mumbai (1,143 MW), Johor (1,049 MW), Sydney (783 MW), and Beijing (613 MW). In these major cities, the gross yield on cost reaches up to 14%.

Gordon Marsden, Head of Capital Markets, Asia Pacific, noted the expanding interest in data centre investment, stating, "The often-quoted 20-plus percent CAGR on data centre development and the sector's potential rental streams mean we continue to see a vast array of participants seeking exposure to development. We have seen these investments rapidly evolve from smaller plays on, for example, a piece of land, to larger scale deployments requiring consortiums that bring together a number of different positions." He added, "We do expect to see consolidation as the sector matures, but for now at least, the capital requirements mean the sector continues to attract vast capital at a faster rate than other asset classes in the CRE universe."

Marsden also pointed to a slow increase in transactional activity providing insights into pricing, saying, "We have seen a flurry of valuation activity in response to recent transactions in Japan, Korea, and Singapore. Mostly, these have been legacy data centres that have leaned into enterprise tenants and colocation operators, rather than hyperscale, but they have nonetheless provided some clarity around pricing."

The capital requirements for each market vary, with Japan needing the highest investment of USD $35.44 billion, followed by India at USD $16.38 billion, and Australia at USD $15.51 billion. The Chinese mainland and Malaysia also require significant investments at USD $13.44 billion and USD $11.59 billion, respectively.

The data highlights the considerable financial commitment necessary to support the region's burgeoning data centre sector, driven by technological advancements and increasing data needs across Asia Pacific.