How to invest in the growth of data across Asia

EXS Capital has found a niche in Asia’s booming new economy – as a landlord of the cloud. The fund has raised $200m from Bain Capital Credit to buy data centres.

By 2021, people in the Asia-Pacific region will use twice as much mobile data per month than North Americans and Western Europeans combined, according to US IT hardware firm Cisco.

The widespread adoption of cloud computing, the Internet of Things, and big data analytics will together create a vast, unprecedented cornucopia of data. But where will it all be stored? 

“In the cloud” is rather a deceptive answer as the data is kept in non-descript storehouses called data centres that keep servers sitting on racks safe and cool.

“Data centres are literally the real estate on which the cloud lives,” said Eric Solberg, chairman of Hong Kong-based investment firm EXS Capital, which buys and develops the buildings. 

While data centres have proliferated across the US, where rules on building them are broadly uniform and sourcing the required finance is more straightforward, Asia remains relatively underserved.

“The North American markets are very competitive and very well capitalised,” Solberg said.

Along with Nigel Clarkson, formerly at British Telecom, and Theo Hubbard, previously at Roc Asset Management, Solberg has formed Stratus Data Centres, a data centre property platform that raised an initial A-round of $200 million from investment firm Bain Capital Credit. The startup plans to put that money to work this year.

The idea is to build the data centres – which are basically warehouse-size secure refrigerators – and then rent them to cloud service providers such as Alibaba Cloud, Amazon Web Services, Microsoft, and Google.

In one of the latest signs of growing demand, Tencent Cloud said on March 28 it plans to launch four new data centres, in Hong Kong, the United States and India. Tencent Cloud said its first overseas data centre in Hong Kong served the financial, gaming internet industries based in the territory.   

These internet giants have huge growth expectations for the Asia Pacific region and are investing heavily. They are the fastest-growing users of data centres in cities such as Sydney, for example, according to a January report from Research and Markets.

To avoid the cost and headache of constructing their own IT hardware across Asia, these hyperscalers, in the jargon of the industry, would rather rent space in a data centre than buy one. Also, they prefer not to rent from potential competitors.

“The hyperscale guys like Amazon and Goggle don’t want to share – they want a whole building for themselves. They have so much demand but don’t want to be a real estate company,” Solberg said.  

That growing need creates an opening for investors to offer a variety of solutions that has not been lost on some major players. Canada Pension Plan Investment Board (CPPIB), for example, said in October that it had partnered with Singaporean conglomerate Keppel to invest up to $500 million in data centres across the Asia Pacific region and Europe.

POWER HUNGRY

Most experts agree more data centres are needed in the Asia Pacific region. Property agent CBRE estimates that the region could easily absorb an additional 140 megawatts of data centre supply. Or put another way, 2 million to 4 million square foot of additional real estate.

Data centres use a lot of power, in some cases as much as a small town. And in Asia the demand for them, current and potential, is huge, so many have sprung up on top of the submarine cable nodes of Hong Kong and Singapore.

Energy use by Asia-Pacific data centres already makes up 26.5% of the total energy used by data centres globally. Usage is also inefficient in the region due to a lack of energy-management methods, according to Research and Markets.

Data centres often need to be built near large cities to ensure businesses can quickly retrieve their data, an issue known as latency. So areas such as Tseung Kwan O or Kwai Chung in Hong Kong or Jurong in Singapore are popular data centre locations.

Stratus has already bought a data centre in Amsterdam and is working on buying, converting or building others in Singapore, Sydney, and Tokyo. 

“Data centres stand at the juncture of where the hard assets of the real estate world meets the new economy world,” Solberg said.

¬ Haymarket Media Limited. All rights reserved.