TECHNOLOGICAL advancement and the pandemic have transformed today’s world to be more digital. Continued strong growth in data requirements underpins long-term demand for quality data-centre (DC) space.
DCs are well-placed to weather the economic downturn, thanks to steady income flows. Their customers and tenants are willing to commit to long lease terms, as it can be challenging to find space suited to their requirements. Once DCs have matured and are fully operational, they present good core or core-plus income and yield assets.
While DC development in the Asia-Pacific (Apac) trails that of North America and Europe, Apac growth prospects are underpinned by rapid population growth and young populations. The Apac DC colocation market is estimated to expand at a compound annual growth rate of over 13 per cent by 2026, outpacing growth rates of 7 per cent in North America and 12 per cent in Europe, the Middle East and Africa (Emea).
The Asia-Pacific has a diverse political geography; each country in the region has its own laws and regulations, which need to be complied with. This is less of an issue when operating in a single country or within a region, where there are agreed-upon rules and standards, such as the European Union. This unique requirement for data sovereignty is expected to generate additional local DC demand for the region – an example being Amazon and its intention to establish local DCs to assist its customers in meeting data sovereignty requirements.
Similar to logistics, DCs have been highly sought after by investors during the pandemic, resulting in considerable cap-rate compression since 2020. However, given prevailing higher financing costs and tightening pricing, DCs slowed last year. Investors shifting their focus to project development, in collaboration with DC operators, also results in low investment volumes.
Data centre sustainability
While DCs play a critical role in the digital economy, they consume significant resources, especially energy and water. DCs account for 3 per cent to 4 per cent of greenhouse gas emissions globally. Heat rejection of cooling systems is typically evaporation, which consumes significant amounts of water. The Uptime Institute’s research shows that a 1MW DC with traditional cooling methods uses about 25 million litres of water per year – equivalent to the consumption of about 450 individuals per year.
GET BT IN YOUR INBOX DAILY
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The generation source of the electricity consumed by DCs is of material consideration. DCs in a location with lower grid carbon intensity and access to renewable energy through power purchase agreements (PPAs) or renewable energy certificates (RECs) may present a more favourable option for DC operations than those locations with “dirty” grids and low access to renewable energy.
Operator progress on sustainability
In recent years, positive steps have been taken. A number of DC colocation operators have made public commitments to sustainability and to achieve net-zero carbon (NZC) or carbon neutrality. This move to action is evident in the formation of group initiatives such as the EU Climate Neutral Data Centre Pact, which brings together operators and trade associations in Europe with commitments to be “climate neutral” by 2030 through a focus on energy efficiency, clean energy, water, a circular economy and circular-energy systems.
Priority considerations
DC operators understand the need to improve environmental performance in the sector. A recent JLL study found that becoming more sustainable and socially responsible is the No 1 priority for DCs in Asia. The same study found that the top features undertaken by operators to drive more sustainable operations include:
- Building management systems, including automatic controls and sub-metering
- Airflow management solutions, such as hot-cold aisles
- Artificial intelligence/machine-learning controls for air conditioning
- Peak shaving, a process of leveling out peak electricity use, using uninterruptible power supply
- Direct-to-chip or cold-plate technologies
- Rainwater harvesting systems
Carbon neutrality
DCs consume large amounts of energy and water in their operations. While progress is being made to improve resource efficiency with new technologies, means of operating and improved design or construction practices, the considerable residual carbon emissions and consumption will have to be addressed.
It is unlikely that DCs can be considered NZC unless sufficient on-site or dedicated renewables can be sourced locally. A further challenge for DCs is the lack of independent benchmarks setting out appropriate decarbonisation or energy-efficiency pathways, which makes charting a path to NZC challenging.
Still, DCs are critical infrastructure, and demand for them will only increase in the decades to come. It is therefore positive that institutional investors with a focus on achieving NZC are active investors in the sector. Active investing will continue to push the boundaries of the sustainability standards that these buildings can achieve, and present the opportunity to be a key part of the transition to a low-carbon economy.
Mark Cameron is head of sustainability for the Asia-Pacific, Nuveen Real Estate. Leo Chung is director of research for the Asia-Pacific, Nuveen Strategic Insights.
Keyword added to your list