According to CBRE research, Asia Pacific data centre net absorption doubled in 2020, reaching an all-time high - with Tier 1 markets, including Tokyo, Sydney, Singapore and Hong Kong SAR, reaching 322 megawatts (MW).
This jump in net absorption was driven by a pandemic-led surge in demand for video conferencing, online schooling, entertainment, social networking and platforms to support remote working - spurring requirements for data storage, computing and networking over the course of 2020.
Singapore and Sydney registered the strongest demand, closely followed by Tokyo. Most demand originated from hyperscale cloud providers, which contributed around two-thirds of annual absorption. Among end-users, demand was led by gaming, over-the-top media services, online content and streaming providers.
Other major demand drivers include global technology services companies, which are catering to growing corporate requirements for remote working and other virtual arrangements and financial sector firms, which are also displaying a strong appetite for colocation requirements and cloud storage.
The report reveals that digital transformation is generating demand for data centre capacity beyond traditional Tier 1 data centre markets. In developed markets, data centre operators are seeking expansionary opportunities in other cities to reduce latency while enhancing local data exchange efficiency. Demand in emerging markets such as mainland China, India and Indonesia also continues to gain momentum.
On the supply front, the four Asia Pacific Tier 1 data centre markets recorded unprecedented growth in total colocation capacity in 2020, which increased by 17% y-o-y to 1,781 MW by year's end, with the bulk of completions located in Sydney and Singapore. 2021 will see a further increase in new completions, with several projects experiencing pandemic-induced construction delays during 2020 finally scheduled to come on stream. Overall vacancy in Tier 1 markets continued to trend downwards over the year, falling to 13.9% as of the end of Q4 2020.
Other key trends identified in the report included an uptick in demand for edge data centres, which are smaller facilities located close to users and serving a small, limited area. Potential Tier 1 edge data centre markets in Asia Pacific include suburban areas in Japan and Australia. Requirements are also growing for remote management and/or remote hands services, which allow customers to have real-time visibility on critical functions such as environmental controls, physical security and network connectivity.
"The COVID-19 pandemic has accelerated digital transformation across areas such as eLearning, online shopping, content streaming and entertainment. Business continuity planning has also prompted the rapid uptake of cloud adoption to support remote working. Looking further ahead, the wider adoption of 5G, further digitalization of healthcare and other government services will be the primary demand drivers of data centre growth," said Chin Yee Lim, Senior Director, Asia Pacific Data Centre Solutions, CBRE.
In the investment market, full-year transaction volume for data centre assets reached $2.2 billion in 2020, the highest in five years. The year also saw a continuation of platform formation and M&A deals for data centres, with upwards of $5.0 billion deployed by funding platforms and joint ventures across the region.
"Data centres continue to lure investors keen to avail of the opportunities resulting from massive demand for data storage and computation. The asset class also offers prospects for diversification and enhanced risk-adjusted returns. With operational risk and securing planning approvals remaining a challenge, CBRE advises investors to form partnerships with experienced data centre operators, especially second tier groups looking to expand their scale and capacity," said Dr. Henry Chin, Global Head of Investor Thought Leadership and Head of Research, Asia Pacific, CBRE.