In this exclusive interview with Vivek Dahiya, we delve into the critical shifts and innovations shaping the data centre industry in the Asia Pacific (APAC) region, as well as the challenges and opportunities that lie ahead.
As the Managing Director & Head of the Data Centre Advisory Team for Asia Pacific at Cushman & Wakefield, Vivek shares his insights on guiding market entry for global companies and navigating the complex parameters of site acquisition.
Don’t miss Vivek’s upcoming sessions at the Data Centre World Asia on 11-12 October.
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What fascinates you about the data centre industry?
The beauty of data centres is that they’re part real estate, part infrastructure.
If there is a power outage in a building or a city in Asia Pacific, it might make local news. But if Facebook or WhatsApp is not working for 10 minutes, it becomes front page news across the world.
In most cases, these outages are caused by back-end infrastructure, and data centres are a part of that. So while they may not be a visible asset class, they are the infrastructure on which the digital economy works. And if they go down, the global economy goes down.
Most people really haven’t realised how their lives are run at the back end, especially since 2020, or their reliance on such infrastructure. This reliance will only increase as we become more and more digital. I find this criticality fascinating.
What is the current state of the data centre landscape in APAC, and what are some key trends?
Asia Pacific is now the second largest region after the Americas when taking into consideration both existing capacity and near-future pipelines. At more than 9GW, we are larger than Europe, the Middle East and Africa (EMEA) and we expect this trend to continue.
In recent years, we have seen existing or legacy players continue to invest and grow their platform in Asia Pacific. We have also seen a lot of new firms enter the region. These could be either firms out of Europe or the Americas who are now expanding globally, or it could be new, private equity-funded platforms created specifically for building data centres in APAC.
There are a number of such players – whose names did not exist five years ago – now investing predominantly within Asia Pacific. This has greatly increased the depth and maturity of the market, which is good for the industry in Asia Pacific in the long run.
What are some of the primary benchmarks used when comparing data centre capacity and performance across various countries in Asia?
The key indicator that we track for data centres is the IT load, both operational and upcoming. We do this not just for Asia, but across the world.
The IT load shows us how much power is being used to run the operations, and we derive the square metres or square feet from there. Like any other asset classes, we also track the demand, future demand, absorption and vacancy rates.
The other metrics that we keep in mind that are unique to data centres are the power, water and carbon usage rates – PUE, WUE, CUE – which show us how sustainable and efficient a data centre is.
With rising demand and lower vacancy, finding the best location for a data centre can be a challenge. What factors should be considered when selecting a location?
Site acquisition for data centres can easily take between 9 and 12 months, even without high demand or low vacancy. Shortlisting sites for data centres is far more detailed and technical than for other asset classes.
There is a list of 70 to 100 parameters that have to be looked at, from soil testing to the surrounding ecosystem – it should not be under a flight path or in a floodplain, for example. Some of these parameters are critical and some are more ‘good to have’ or more important from an awareness perspective, but the checks have to be done before any site is acquired.
To explain this further, in no other asset class is between three and five months required for technical due diligence after signing a term sheet. Multiple consultants and specialists become involved, and for one missed parameter, a site can be dropped. So the hit rate is also lower compared to the site selection success rate for other asset classes.
Which countries within the APAC region do you consider leaders in data centre market? What is holding other markets back?
We get asked this question a lot, which is why we created a maturity index which breaks down cities into not just primary and secondary markets, but into powerhouse, established, developing and emerging classifications.
The good news is that all four categories are continuing to see growth, and they will continue to see investment. The established locations are becoming stronger and new countries are being added to the list to receive international, institutional-quality data centres.
The challenges for each location are different. Some more mature markets are facing challenges with the quantum of power required by data centres. In part, this is because the slower-growing economies of more mature markets meant that there was not as much investment in power generation, but suddenly data centres require a lot of power.
In contrast, the emerging economies, which were investing in power, are in a relatively more comfortable position to meet the demand. Regardless, every country is seeing investment.
What are the key challenges faced by data centre operators in the APAC region? What strategies can be employed to mitigate these issues?
In the long run, the challenge will be sustainability because the amount of power data centres are going to consume in the future is far more than they are consuming currently or have ever consumed in the past. So it is critical for public and private capital to invest in sustainable sources of power, so that not only is power available, but it is sustainable. In this way, the data centre sector can continue to grow.
Acquisition of land is also a challenge across the world because of the title and technical due diligence needed, and because every country has unique land laws and its own unique process for acquiring a site.
The site or land acquisition process can take anywhere between nine and 12 months, and the build takes another two years, so building capacity is not easy. This long lead time is another challenge which is unique to this asset class, and as operators look for efficiencies, they are beginning to land bank to avoid returning to the market every few years. They are also working out partnerships with power generation companies to secure access to green power, so they are working towards solutions for these two challenges.
What are your predictions for the future of the data centres in APAC? How can data centre operators capitalise on these opportunities?
The predictions are that the forecast is very, very positive. We are, in most countries, seeing planned and under-construction capacities that far exceed the existing operational capacity.
It is a matter of time before the capacity in Asia Pacific is doubled as a result of the investment and construction being done across the region. With the exception of Singapore, which has a moratorium, every other location will see massive deployments and we will continue to see investment in increasing capacity.
If a country in Asia Pacific has not seen investment, they are just slightly behind in the queue and it is only a matter of time before this wave reaches those remaining countries as well.
How would you encourage more people to work in the data centre industry?
Compared to some industries, the data centre industry does not require a lot of people.
To put it in perspective, a 300,000 square foot office in an IT company would probably employ 3,000 people. A 300,000 square foot data centre can be run by 30 people.
Having said that, the quantum of investment and the quantum of development taking place within the industry means that there is currently a great need for a lot of people to join. While it is not very labor intensive, we do need more and more people, especially those skilled on either the hardware or software side.
I would say the most convincing argument for anybody to take an interest in the industry now is the opportunity to witness an unprecedented, once-in-a-lifetime kind of a boom in an industry which just keeps surprising us. And it is not just a flash in the pan – this boom is expected to continue for the next 10 years.
What key takeaways or discussion points do you hope to impart at Data Centre World, and why would you encourage fellow leaders to secure their free ticket?
Because we are a relatively young asset class, hardly anyone was tracking the supply/demand equations, or absorptions and vacancies three or five years ago.
We are now at a stage as an industry where industry groups need to join together and become more collaborative. This is not easy because of the non-disclosure agreements and confidentiality associated with the intellectual property of this asset class. That said, there is scope for more information sharing.
There is also scope for industry standards to be created. We are witnessing the professionalisation and institutionalisation of data centres very similar to what commercial real estate saw 30 to 40 years ago. Current participants need to be responsible for ensuring that this industry becomes even more professional in time to come, and for working with governments in their respective countries to make sure that those industry standards are implemented.
As a community, as an industry, it is everybody’s responsibility to make sure that the asset class and the metrics that we track become more open and transparent so that data centre players are able to make intelligent, informed decisions. This is an opportunity for higher collaboration to make the sector even more professional in times to come.