Data center investors are increasingly targeting emerging Asia as a lack of deals in the region’s mature markets forces them into riskier, untapped investments.
Allocations to emerging Asian data center markets for the first half of 2024 have increased nearly fivefold over the past six months, MSCI reported. Asian Investors.
Total inflows into the group consisting of India, Malaysia, Indonesia and the Philippines rose to $735 million in January-June 2024 from $135 million in June-December 2023, the second-largest six-month period on record.
The increase contrasts with a decline in capital flows into Asia’s established data center market in the first half of the year, with total allocations to mainland China, Japan, Australia, Singapore and South Korea falling from $1.35 billion to $1 billion in the six months, according to MSCI data.
Spencer Park,
Milbank LLP
“Southeast Asia is busy and we’re actively working on transactions in Indonesia and the Philippines,” said Spencer Park, special counsel at Milbank’s Seoul office. Asian Investors.
Park’s clients include many Korean institutional investors and asset management companies.
Allocation Increase
The Asia-Pacific data center market boomed in the first half of the year, driven by investor inflows into emerging Asia, with total investor inflows rising to $1.73 billion from $1.49 billion in the first half of the year. Malaysia accounted for $477 million of the allocation, more than any other country, according to MSCI.
Park said Milbank has been involved in several recent transactions in emerging Asia, including arranging a $1.5 billion loan for Adaconex to develop up to five data centers in Pune and Hyderabad, India, the country’s largest sustainability-related loan.
In April, Adani Conex, set up by Indian multinational data centre group Adani Enterprises and Sweden’s EQT-owned EdgeConex, said it would invest $5 billion over the next five years, more than half of which would be invested this year, funded mostly by promoter capital infusion and $1.2 billion-1.4 billion through debt.
Indonesia is becoming increasingly attractive, absorbing investor inflows of $282 million since the start of 2023, according to data from JLL. Both Malaysia and Indonesia are also attracting capital allocations from bond investors.
Selina Chua, JLL
“We’ve also seen increased borrowing in Malaysia and Indonesia recently,” said Selina Chua, JLL’s data centre client solutions director, Asia Pacific.
She cited data center developer Yondol, which recently secured up to $150 million in financing from the International Finance Corporation to build a data center campus in Johor, Malaysia that will be the largest hyperscale data center campus in Southeast Asia, with more than 300MW of generating capacity.
Yondr is wholly owned by Cathexis, the family office of Texas billionaire William Harrison.
Increasing competition
Ben Chou, MSCI
The increased activity in Asia’s developing markets comes amid growing competition in developed markets and is reflected in rising prices and falling yields.
Ben Chow, head of Asia real assets research at MSCI in Singapore, noted that yields on single-asset trades in the Asia-Pacific region have been in the 3% to 5% range recently.
“Even outside Japan, where borrowing costs have risen significantly, transaction yields remain tight,” he said.
Two data centres in Sydney and Singapore traded for yields of nearly 3.5% to 2024. In both deals, the data centre operator acquired the buildings and land from the respective landlords, he noted.
Experts say much of the new investor activity is targeted at development projects rather than completed data centers and platforms, of which there is a severe shortage.
Tom Fillmore, CBRE
“In emerging markets, from a relative perspective, it’s generally easier to find land because the asset class is in its infancy compared to more established markets,” said Tom Fillmore, executive director, Asia Pacific, data centres and capital markets at CBRE in Singapore.
Emerging Asia is leading new data center construction this year, continuing a trend that sees India alone surpassing Japan, Australia and Singapore in 2022 and 2023, according to MSCI data.
“Last year saw a record high of more than 2.5 gigawatts of data center construction, driven by several emerging markets, with momentum remaining strong in India and a surge in Malaysia,” MSCI’s Chow said.
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