Singapore still leads the race for data centre operations in the Asia-Pacific despite a large amount of data centre space having come through in the last two years, according to a report.
A new study by real estate services company Cushman & Wakefield has ranked the Republic as the most robust market out of 10 Asian hubs in terms of business operations for data centres.
It racked up the top score of 84.5 out of 100 in an index that identifies the biggest risks for such operations - ahead of South Korea, which had a score of 83.23, Hong Kong, at 78.73, and Japan, with 76.48 points.
The index, which looks at factors such as energy, Internet bandwidth, the ease of doing business and political stability, as well as natural disaster and energy stability, showed Singapore performs strongly in network infrastructure and its diverse connectivity to major Asia-Pacific markets. Its pro-business environment and political stability are also plus points.
Cushman & Wakefield noted that Singapore holds the biggest capacity in the data centre market regionally, with a total of 370 megawatt (MW) of IT power supply among co-location operators.
The country has seen an influx of new data centre capacity in the last two years, which led to "some price and vacancy pressure, particularly among smaller data centre players".
But it should be able to expand its capacity by another 100MW over the medium to long term, on the back of the Smart Nation initiative as the Government pushes for a national digital transformation programme, said the report.
"Local data centre providers such as Singtel, Keppel Data Centres and ST Telemedia stand to be the primary beneficiaries of this," it noted.
Singapore's score, out of a possible 100, in an index on data centre operations that looks at factors such as energy, Internet bandwidth, the ease of doing business and political stability, as well as natural disaster and energy stability. This was ahead of South Korea at 83.23 points, Hong Kong at 78.73, and Japan at 76.48.
At the same time, investors are increasingly looking at data centres as an asset class. "Data centres present a fast-growing and appealing investment asset class that is attracting huge interest in the United States and in Europe, the Middle East and Africa, particularly from institutional investors," said the report, citing Iconiq Capital.
In terms of demand,cloud operators have overtaken banking clients to be the largest occupiers of data centres since last year, said Cushman & Wakefield, adding that the exponential growth of cloud computing is likely to drive demand for data centres over the medium term.
It estimates that occupancy rates for data centres in Singapore will hit 70 per cent by the end of 2018, as data centre supply in Singapore expands by 15 to 18 per cent in the next year.
The report noted that data centres typically have higher capitalisation rates than traditional asset classes such as office, retail, hospitality and residential.
"In the current low interest rate environment, the spread between the interest rate and the cap rate is large enough to continue to attract investors into the data centre business."
Investment opportunities include building new facilities and the sale and leaseback of existing premises, as well as buying operating businesses. "The entry of multinational companies, the establishment of their own data centres and their network presence within third-party data centres will certainly create an ecosystem and boost interconnectivity," noted the report.
That said, Cushman & Wakefield stressed that investing in data centres is not for everyone.
Construction costs, for instance, can run from US$100 million (S$136 million) for a multi-tenanted facility to as much as US$1.5 billion for a cloud campus housing several buildings, setting a fairly high barrier to entry, while the pool of buyers is also expected to be limited.