Companies eye Singapore for data centre storage, cloud leasing

WHEN it comes to big data, Singapore is going large. More companies are looking to lease existing buildings for data storage, and some tech companies are building their own facilities. With the announcement from Google and Facebook that they are setting up data centres here, this burgeoning new sector has been thrust into the limelight.

Across the Asia-Pacific, the data centre market is expected to grow by 27 per cent annually, according to research by PwC, and Singapore is set to be a key beneficiary.

This wave of demand presents excellent opportunities for investors, creates jobs, and elevates Singapore's status as a tech hub. South-east Asia's rising Internet and social media use, as well as the growth of e-commerce mean that the city-state is becoming a hotbed for tech companies looking to use it as a gateway to enter other markets.

Singapore is one of the "Big Four" in the region when it comes to data centres, along with Hong Kong, Sydney and Tokyo. While both Hong Kong and Singapore are popular choices for companies looking to set up headquarters, Singapore has an edge with its stable geopolitical climate, supportive regulatory environment and relatively cheaper land costs. The Singapore government has also prioritised diversity of locations and greenfield availability for data centres, allowing the market to evolve and meet demand.

Many cost-conscious companies across various industries, including finance, healthcare and consulting, have shifted, or are in the process of shifting from self-run data centres to co-location or cloud leasing, which enables them to cut costs and add value.

The subsequent rise of cloud provider companies is also driving demand for data centres in Singapore. This growing demand presents multiple opportunities for investors looking to diversify their investment portfolio, and seek higher risk-adjusted returns.

Infrastructure remains one of the key drivers for companies looking to set up data centres. Given that these facilities handle critical and sensitive user information, they need to run 24/7, requiring a constant supply of electricity and robust international network connectivity. Singapore's Multi-Tier Cloud Security Singapore Standard 584 means that it has the world's first cloud security standard.

While Singapore remains a firm favourite for data centres, the relative scarcity of land, as well as higher labour and operational costs might pose a challenge for some companies. Singapore also faces competition from emerging South-east Asian markets such as Indonesia, Malaysia and Thailand, which have been improving their infrastructure amid the fourth industrial revolution taking place today.

Some companies have looked to China, India and Indonesia following changes in data protection and cybersecurity laws, while also being attracted by the sheer size of these markets by population. In Indonesia, for example, customer data in domestic banks must be stored locally as of October 2017.

Our recent report Data Centres: Powering Asia's Digital Boom indicates that growth in Singapore's data centre market remains promising. Although Facebook and Google have chosen to develop their own data centres, some single users or operators prefer to undertake a Build-to-Suit lease arrangement, whereby the propco investor will provide the land, and typically a powered core and shell build.

The appeal lies in the user having full operational control, a customised base build, and ability to scale over time.

Such arrangements have been a notable trend in the last few years, as observed in Jurong DC Park (Tanjong Kling Park). We are likely to see more of such arrangements adopted in the central and east districts of Singapore in the years ahead. Following the record-breaking supply of data centres in 2016/2017, we are likely to see the market remain stable as absorption catches up.

With overall fundamentals in Singapore remaining strong, the country continues to attract interest from operators and end-users, providing a stable income stream for investors in a sector less impacted by the traditional real estate cycle.