Jabez Tan, Structure Research on the Hong Kong Data Centre Market

• June 26, 2017

Source: South China Morning Post

When news broke in December 2013 that Google had pulled the plug on its Hong Kong data centre project, there was plenty of hand-wringing and finger-pointing that followed as people tried to make sense of what had happened.

The American internet giant’s decision came about two years after it broke ground on a 2.7-hectare site inside the Tseung Kwan O Industrial Estate, where it had committed to invest US$300 million in the facility that was to start operations later that year.

The company’s official line for abandoning the project was that it needed “to focus on locations where we can build for economies of scale”, adding that Hong Kong lacked the land for expansion. So it pushed ahead with the construction of data centres in Singapore and Taiwan instead.

Four years later, the Hong Kong data centre market has moved on and now sees its growth inextricably linked to the ambitious development plans of large, nimble and deep-pocketed mainland Chinese companies.

“A large part of the Hong Kong market’s growth will ultimately be driven by the major Chinese internet companies – Tencent Holdings, Baidu and Alibaba Group Holding – that are rapidly expanding their businesses around the world,” said Jabez Tan, the research director at Toronto-based Structure Research.

“The financial services industry still represents the largest customer base of data centre providers in Hong Kong, but the main catalysts for growth in the near term would be the information technology, cloud services, media content and telecommunications sectors.”

Tencent, the world’s largest video games company by revenue, has driven its overseas business expansion from the city, where it is supported by data centre providers such as Equinix.

Alibaba Cloud, the cloud computing arm of e-commerce powerhouse Alibaba, already opened a data centre in Hong Kong in 2014 as part of an aggressive international roll-out. New York-listed Alibaba owns the South China Morning Post.

Data centres are secure, temperature-controlled facilities that house large-capacity servers and data storage systems, equipped with multiple power sources and high-bandwidth internet connections.

These are used by enterprises to remotely store large amounts of data, manage their business applications and host cloud computing operations. Cloud services enable companies to buy, lease or sell software and other digital resources online, on demand, just like electricity from a power grid.

Data centres in Hong Kong have clustered around the districts of Tsuen Wan, Kwai Chung, Sha Tin, Kwun Tong, Kowloon Bay, San Po Kong, Quarry Bay, Chai Wan and Tseung Kwan O.

These facilities are mostly run by so-called external data centre providers, as opposed to those that enterprises build, own and operate for their own internal purposes.

The primary business segments of external data centre providers are co-location, cloud and managed hosting, according to Philbert Shih, the managing director at Structure Research.

Co-location refers to leasing space, power, cooling and connectivity to enterprises, which must purchase their own servers, storage and networking systems, as well have their own staff to manage these resources.

For cloud services, computer and storage infrastructure are leased and managed remotely by enterprises on a pay-as-you-go, or consumption, basis.

In managed hosting, enterprises rent the servers and other specified equipment from the data centre operator, which also handles the management and operation of those systems.

Structure Research forecasts Hong Kong’s data centre co-location market segment to generate HK$9.3 billion in total revenue by 2020, up from an estimated HK$6 billion this year.

It said the city’s top three data centre co-location providers by revenue last year were US operator Equinix with US$139.2 million, Japan’s NTT Communications with US$128 million and SuneVision with US$115.5 million.

Frost & Sullivan’s latest report on the Asia-Pacific data centre industry projected that the overall regional market would be worth US$31.9 billion by 2022, up from US$14.1 billion last year.

There are 56 operational data centres offering co-location and other services in Hong Kong. SuneVision, the technology arm of property developer Sun Hung Kai Properties, is set to launch its Mega Plus facility in Tseung Kwan O later this year.

“When in full capacity, it will be the largest data centre in Hong Kong,” Peter Yan King-shun, the chief executive of SuneVision, said recently.

The Mega Plus complex, with a gross space of 470,000 square feet, represents the first site to be developed on a three-hectare plot of land in that industrial estate, regarded as the premier location for the biggest and most advanced data centres in Hong Kong.

Yan predicted Hong Kong’s data centre market would grow more than 10 per cent annually over the next few years. “Multimedia content providers and cloud companies have big demand for data centres for storage and networking. Hong Kong is an attractive choice for them,” he said.