Jabez Tan on the Global Data Centre Market

The main story in the business of colocation (building and leasing data center space) over the last five years or so had been the explosive growth in demand from hyperscale platforms as they raced to expand capacity. In addition to building enormous data center campuses in remote areas on their own, Microsoft Azure, Google Cloud Platform, Facebook, and the like leased tons of capacity in densely populated areas from colocation companies – both at mind-boggling scale and velocity – completely changing the nature of the colocation business as a result.

That story, however, took place in the biggest and most mature data center markets: places like Northern Virginia, Amsterdam, or Singapore. While still growing, many of those top markets have now matured, their growth rates either plateauing or approaching that point. But global connectivity has not plateaued. More and more people around the world are coming online, and more businesses are transitioning to cloud-based infrastructure. The attention of those making decisions about where hyperscale cloud platforms or colocation providers should build their data centers next has now shifted to markets they hadn’t looked at in the past.

The next phase of the data center boom is happening in places like Jakarta, Chennai, Osaka, Warsaw, Zurich, and Salt Lake City. To get a better understanding of what’s creating the gravitational pull in these places, we recently caught up with Jabez Tan, head of research at Structure Research, who recently published a report that provides a detailed update on the latest trends in data center hot spots around the world. Tan joined us on The Data Center Podcast to talk about his findings. (Scroll to the bottom of this article to listen.)

2,000MW Annually

The size of the global data center colocation market, including both wholesale and retail colocation, is now about $54 billion, Structure estimates. The top 15 providers account for about half of the market, the largest among them being Equinix, Digital Realty Trust, China Telecom, NTT, and China Unicom.

Structure expects the colocation industry to add close to 2,000MW of new data center capacity annually between 2020 and 2025, 38 percent of it in Asia Pacific, 30 percent in North America, 27 percent in Europe, Middle East, and Africa, and 5 percent in Latin America.

While the data center market in Latin America is growing faster than in any other region, when looking at the volume of data center capacity being added and leased, Asia Pacific is where the bulk of the action is taking place. Thanks to China’s sheer population size and its rapid economic development, the Asia Pacific colocation market as a whole overtook North America’s in 2018 in terms of revenue and in 2019 in terms of total data center capacity, Tan told us. Capacity lags revenue because pricing tends to be lower in more mature markets.

But China isn’t the whole story in APAC, a large and diverse region that encompasses many different markets. The Chinese market is vast and growing fast, but access to that market is so restricted for foreign companies that few international data center operators have bothered to seriously invest in expanding there. The country’s protectionist policies have left the booming hyperscale market almost entirely for local data center providers to take advantage of, fueling explosive growth for old incumbents like China Telecom and China Unicom – they are two of the five largest colocation providers in the world, while operating in China exclusively – as well as new entrants, such as Chindata Group, which recently went public on the back of its success in roping in ByteDance, the hyperscale company behind TikTok that, according to Tan, leases more than 80 percent of Chindata’s capacity.

Whatever spark foreign data center providers had for tackling the massive China opportunity a few years ago has been extinguished by the Trump administration’s trade war, and multi-national operators’ eyes are now on other markets in the region. They no longer see a point in trying to operate in a country that’s been hostile to foreign businesses, when there are “other really high-upside growth markets in Asia, like India and Indonesia and Korea and Japan, that [are] really only starting to accelerate in terms of cloud adoption, in terms of internet usage, in terms of public cloud services, or even SaaS services,” Tan said.

Competition Heats Up in Japan

Of the emerging Asia Pacific markets, Japan is the largest. “In terms of absolute size, excluding the Chinese markets, I would say Tokyo is actually the largest market in Asia in terms of data center capacity – just because of how big the Japanese population and the Japanese market is.”

Japan has the world’s third largest GDP, yet there isn’t a domestic hyperscale cloud provider there, and both Chinese and American hyperscalers are now competing intensely for market share there, Tan explained. That competition has been playing out in Tokyo and Osaka.

Jakarta, Indonesia’s largest population center and epicenter of its booming data center market, isn’t large in terms of data center capacity – at least not yet. Structure estimates it to have about 75MW of colocation capacity total. For the sake of comparison, Singapore, a top-tier Asian market, has nearly 500MW, while Tokyo, the largest data center market outside of China, has 780MW.

The Indonesia market is “very tiny, but that market could easily quadruple over the next three to five years, given… the amount of land banking that we’re seeing happening” there, Tan said.