Data centres – a bright spot in the property market

The data centre market is growing at a CAGR of 20%, and Singapore is uniquely positioned to be a major beneficiary. Financial behemoths like Citigroup and OCBC maintain their own facilities while others use colocation centres that are available from providers like Singtel.

Although these installations do not require a very large land area, their rapidly increasing numbers will give a boost to the real estate market.

The biggest data centre provider is Singtel with an estimated 40% share of the market. But there are a number of other heavyweights in the country. Equinix of the US is a large operator as are Global Switch, Keppel, and Digital Realty.

Equinix has three buildings with a total of over 370,000 square feet of colocation space. Global Switch is enhancing the size of its operations in Singapore. It has received permission to set up a 270,000 square foot data centre in Woodlands, in the northern part of Singapore about 15 kilometres from its existing centre in Tai Seng Avenue.

Inception of the data centre industry – The late '90s saw the first data centres being set up. But at that time, most facilities were located within office premises. In the latter years of the 2000s, the shift to exclusive installations started. The industry received great support with the launch of iPhones.

Subsequently, the Infocomm Development Authority of Singapore (IDA), the Singapore Economic Development Board (EDB), and Jurong Town Corporation (JTC) set up a Data Centre Park to attract multinational corporations. Telin, a subsidiary of PT Telkom, the largest telecommunications services company in Indonesia, set up operations here.

Growth of data centres – There are several reasons why Singapore has become an important location for data centres. One factor that has played an important role is that the country is a hub for the submarine networks that connect the East to South Asia, and regions such as the Persian Gulf, the Mediterranean, and Europe.

The number of international submarine cable systems that land in Singapore is 15.

Government support and policies promoting this industry have also played a crucial part in the success of the industry. In 2012, the Monetary Authority of Singapore (MAS) introduced its Technology Risk and Management guidelines for financial institutions. This resulted in increased demand for data centre services.

A year earlier, in 2011, the IDA had published the Green Data Centre Standard. Subsequently, the IDA worked with the Building and Construction Authority (BCA) to formulate the BCA-IDA Green Mark for Data Centres.

All these efforts have paid rich dividends. There are 44 operational facilities in the country occupying about 2 million square feet of real estate.

Impact on demand for property – Cushman & Wakefield, a real estate services company headquartered in Chicago, released a report in May 2015 titled "Data Centres: The New Frontier."

The report says, "Despite the across-the-board pessimism in the real estate industry, data centres seem to be one unique segment that is booming with lots of optimism."

According to the report, Singapore has the largest data centre market in the Asia-Pacific region. It is even bigger in size than the UK's market, which is the largest in Europe.

The following chart from Cushman & Wakefield's report shows the increase in data centre demand for the period 2008 to 2015.

An adequate supply of power plays a major role in the functioning of this industry. Data collected by Cushman & Wakefield indicate that there is about 248.5 MegaWatts (MW) of IT power supply in Singapore's data centres. Of this, 163MW has been utilised and a further 55.1MW has been earmarked for future expansion. Power supply of 30.4MW is currently available.

In addition to this, a further 115.9MW of supply will be made available for seven new centres to be set up by December 2016 across Singapore. These include Singtel's centre on Yung Ho Road, Telin's centre on Sunview Road, and Keppel T20's centre on Tampines St 92, all of which are expected to go on stream in Q4 2016.

Future growth – Singapore's importance as a data centre hub can only continue to grow. It is ideally located for Chinese companies expanding into Asia. Trends such as mobility and the Internet of Things will serve to increase the demand for new facilities. The country's own Smart Nation initiative will also lead to an increase in demand for data services.

The other factors that will attract this industry to the country are its political stability, an adequate supply of power, and a highly educated and competent workforce. It is estimated that by 2020, about half of small and medium enterprises will store their data in the cloud, leading to a sharp increase in the demand for data centres.