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Singapore’s Data Centre Market at a Crossroads

22/03/2019

Singapore has always been favoured by data centre (DC) operators for the speed at which data is transmitted, supported by the infrastructure around the sub-sea fibre network provided very early on at the cusp of the DC evolution in the Asia Pacific region.

Over the past few months, news has been rife of DC operators setting up data centres. Equinix, Digital Realty, ST Telemedia and at least two other operators have secured land plots from private landlords and the government industrial agency Jurong Town Corporation (JTC) to build data centres.

In fact, the market is expecting a pipeline of at least 100 megawatts in data storage space by Q4 2020. This is in addition to the current 400 megawatt of power that is being utilised to power Singapore’s hub of data centres.

Singapore’s DC operating landscape evolving

Nevertheless, DC operators are coming round to the fact that operating in Singapore is beginning to be a challenge. The strain on power has raised questions about the sustainability of Singapore’s position as a DC hub in the coming years.

Conversion of conventional industrial properties has become more difficult as DC operators are required to secure a certain level of pre-commitment from tenants.

In choosing to build a DC facility in Singapore, DC operators have to consider the substantial capital expenditure incurred on a piece of real estate with a limited 20-year tenure, in some cases a 30-year leasehold with no guarantee of an extension.

With greater uncertainty, DC operators are beginning to look at alternative locations. Singapore’s edge in interconnectivity is now being challenged as neighbouring cities play catch up in laying sub-sea cables, the lifeline that enables the transfer of data from one location to another. Signs are pointing to the emergence of strong contenders in the first and second-tier cities of Indonesia and Vietnam’s Hanoi and Ho Chi Minh City.

The lure of SEA countries

Cities with large domestic consumption, young demographics and an accelerating level of industrialisation are attractive alternatives for DC operators. Indonesia and Vietnam hold tremendous potential for data storage against rising demand from huge content users.

The Thai government has to date attracted 1.14 billion baht (S$49.5 million) in data centre investments.

DC operators are attracted to the idea that they will be bringing data and cloud storage closer to the consumers. These are the emerging economies of millennials who access voluminous data daily to watch videos, game, make cashless payments. These trends have caught the attention of Alibaba and Tencent, major players in fintech and cashless payment systems who are now sharpening their focus on locating data centres in the second tier cities.

Indonesia has a population of 264 million, Vietnam has 95 million people and a large proportion of their population is young, presenting tremendous potential of data users.

Vietnam’s long coastal line makes it a natural gateway as a sub-sea cables landing point to the other landlocked ASEAN cities. As sub-sea cables are developed in these markets, the second and third tier markets become more connected to the global market place as the DCs are now domiciled in their home country.

For sure, DC operators have to work through the teething problems of fibre connection, incurring costs of engaging a local agent to iron out bureaucracy, powering land parcels with water and electricity. Several DC operators have in fact worked around these teething problems by partnering with a local Joint Venture partner. They have gone one step further to invest in sub-sea cables to allow for greater control over costs. Ownership means they do away with having to pay annual usage costs to telecommunication companies who operate them. The initial set-up costs are still phenomenal but as the data centre market matures, DC operators are navigating a path to managing costs efficiently.

Where does this leave Singapore? Will its status as a DC hub wane?

That Singapore is naturally disadvantaged is well known. It has no hinterland or secondary market, as compared to the other four data centre hot spots in Asia Pacific, including Sydney, Shanghai, Hong Kong and Tokyo. But that has never stopped the country from leveraging its other strengths. Singapore topped scores in the Network Readiness Index and the Cloud Readiness Index. These are considered the most authoritative and comprehensive assessments of a country’s level of competitiveness in the digital economy. The Asia Cloud Computing Association ranked Singapore top in Asia in 2018 for cloud infrastructure, cloud security, cloud regulation and governance.

Market observers are working out various scenarios for Singapore’s future as a Data Centre hub. Singapore’s real estate costs are relatively higher compared to the rest of the regional markets but costs aside, businesses need a stable regulatory regime where it knows the rules are not changed suddenly and arbitrarily, especially given the capital investments and erroneous process to secure the land, get the approvals, build the site and with a ready pool of tech talent to support DC operations. In this regard, Singapore stands out.

It may be that more DC operators will hub their centres in the other markets within ASEAN to enhance data speeds to the end user consumers in the densely populated cities. But DC operators favour Singapore for its relative security and may store mission critical data in Singapore, whilst storing Business-As-Usual non-mission critical data in the other neighbouring data centres. Data will continue to be routed through Singapore to lower the latency.

DC operators looking to Singapore will continue to be challenged by real estate costs given the scarcity of land, but they will have to weigh that against many other factors. This probably accounts for major players like Facebook setting up in Singapore. These will be fewer and farther between in time to come but does not erode its maturity, sophistication and reliability as a data centre powerhouse.

The story above originally appeared on The Business Times on 21 March 2019.

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