Jabez Tan on HK data centre market and its competitive landscape

• February 13, 2019

Source: South China Morning Post

High data centre rents have allowed three firms to dominate US$883 million Hong Kong market

Sector will grow by 17 per cent to US$1.03 billion this year, and increase to US$1.7 billion in 2023, according to consultancy Structure Research

According to a report released on Wednesday by Toronto-based consultancy Structure Research, which focuses on data centre and internet infrastructure, NTT Communications, a subsidiary of Japan’s largest telecommunications company, Nippon Telegraph and Telephone Corporation, Sunevision Holdings, the technology arm of Hong Kong property developer Sun Hung Kai Properties and US-based global co-location data centre operator Equinix command 55 per cent of revenue in the sector.

NTT Communications accounted for 23 per cent, Sunevision for 18 per cent and Equinix for 16 per cent, according to the report. It forecast that the sector will grow by 17 per cent to US$1.03 billion this year, and increase to US$1.7 billion in 2023.

John Siu, managing director at Cushman & Wakefield, said data centre rents in Hong Kong were among the highest globally. “Data centres have been an attractive option for developers and investment funds, as strong demand can support rental growth,” he said.

Charles Mok, the legislative councillor representing the information technology functional constituency in Hong Kong, said limited land for such centres was an obstacle to competition. “It is indeed harder for new entrants, or even for existing ones to expand,” he said.

According to the report, 44 operators run 57 data centres in Hong Kong. Sunevision was the largest operator last year, with a portfolio of 482,000 square feet, about 66.2 per cent bigger than Equinix in second place.

In December, Sunevision spent HK$5.46 billion (US$695.7 million) at HK$4,509 per square foot for a data centre land in Tseung Kwan O that can accommodate a building with a maximum gross floor area of 1.2 million sq ft. The winning price was 45 per cent higher than the upper limit of the land’s valuation and four times more than that of a similar site in the area.

Other bidders for the site included local developers Sino Land and Far East Consortium International, as well as Singaporean real estate fund Mapletree Investments.
Jabez Tan, head of research at Structure Research, said Hong Kong also stood out among other international hubs in the region as the only market where even hyperscale cloud providers such as AWS, Microsoft, Google and Alibaba Group Holding were fully leasing their data centre capacity requirements from co-location providers, and not building their own. And these centres, where equipment, space and bandwidth are available for retail customers, could charge high rents because of “high land cost and limited availability of land outside the Tseung Kwan O area”.

Jabez Tan, head of research at Structure Research, said Hong Kong also stood out among other international hubs in the region as the only market where even hyperscale cloud providers such as AWS, Microsoft, Google and Alibaba Group Holding were fully leasing their data centre capacity requirements from co-location providers, and not building their own. And these centres, where equipment, space and bandwidth are available for retail customers, could charge high rents because of “high land cost and limited availability of land outside the Tseung Kwan O area”.