Singapore. The new epicentre of the data centre world?
In a small Asian country, a global power is emerging. Singaporean businesses, wealth funds and investment firms are beginning to heavily invest into new data centre ventures across the globe by the billions of Dollars. With the rise of the Edge age, these investments could prove the differentiators between those who will thrive, and those who will perish. João Marques Lima looks at the state of the market.
Singapore. One of the world’s smallest sovereign states at just 720 sqkm but also one of the richest.
Its GDP for 2018 is expected to grow to nearly $538bn, making Singapore the world’s third highest grossing economy on a per capita basis at almost $96,000 per each of its 5.6 million residents.
The city is ASEAN’s largest technology market and its plans to modernise its infrastructure through the Smart Nation vision will inevitably force a wave of new investments into telecommunications and data centre assets.
Forrester Research estimates Singaporean businesses and government purchases of tech goods and services will in 2018 amount to $22bn, the same as last year.
The figure might be small when compared to other APAC countries such as Japan and China, which are expected to spend $251bn and $242bn respectively, however, for the physical size of Singapore, which is 525 times smaller than Japan or 13,300 times smaller than China, the figure represents a significant investment.
With the OECD forecasting a growth of 2.6% for the Singaporean economy, investment in technology-based solutions is only expected to continue to increase as digital penetrates all layers of society.
All this will not be possible without data centres and this is another sector in which Singapore has been investing heavily, both through equity funds, government support and other private investments.
But before we delve into what is happening along those lines, it is important to understand the Singaporean data centre market today and what analyst houses are predicting.
According to Markets and Markets, Singapore is the fourth largest market in APAC for internet data centres, behind Japan, China and India.
In 2016, the small city-state amassed revenues of $730m in comparison to India’s $1bn, China’s $2.9bn and Japan’s $6.5bn.
In BroadGroup’s “Datacenters South East Asia” report, analysts write that Singapore has today 22 data centre operators managing 46 facilities.
Singapore lacks in quantity terms behind neighbouring Indonesia at 29 operators and 52 facilities.
However, landmass and population size are again a major factor here.
In fact, analysts say that in Singapore, although the city-state remains the dominant market with 54% of capacity in the SEA region, and with the highest percentage of facilities owned by overseas companies, land space for further development is now extremely limited and they anticipate that investors are now assessing alternative locations, especially around the wider SEA region.
The outsourced data centre market in Singapore reached revenues of nearly $1bn ($934m) in 2017, according to Structure Research.
The market is expected to continue its growth in 2018, adding 13% of new revenue streams with a continuous compound annual growth rate (CAGR) up to 2021 of 12%, when expenditures are forecasted to reach $1.5bn.
Singapore’s estimated outsourcing rate for internet data centres today is 50% to 55%, the same as the US and higher and Western Europe (40-45%) and the overall APAC region (35-40%).
The top main colocation players in Singapore include Keppel Data Centres, Equinix, ST Telemedia Global Data Centres, ST Electronics, Digital Relaty, NTT Communications, 1-Net, Global Switch, Kingsland Data Centres and Singtel.
But the market is not only confined to the colocation guys.
The hyperscalers and the internet giants are also very well established in Singapore.
For example, Digital Realty, Equinix and Singtel have leased space to AWS, Alibaba Cloud, IBM SoftLayer, Oracle Cloud and Salesforce to support their own cloud deployments.
Outsourcing is also not the only option for the hyperscalers with all the mentioned companies operating their own data centre real estate.
In its turn, this has attracted other big TMT brands such as Netflix which entered Singapore in 2016 and is using a third-party data centre for its streaming services across the SEA region.
The majority of data centre space in Singapore is owned by overseas interests, according to BroadGroup.
To top the round, Cushman & Wakefield’s recent “Data center investment: A rare opportunity for the right investor” report, places Singapore as the most robust market out of ten Asian countries in terms of business operations for data centres.
The city-state ranked first, ahead of markets like South Korea, Hong Kong, Japan, Australia, Malaysia, Thailand, Indonesia, China and India.
Building the world
Whilst the Singaporean market is solid and well developed, as previously mentioned, space is becoming limited which is beginning to wake up investors’ interest in other regions and segments.
Interestingly, in recent months there has been an upsurge in investments being made directly from Singaporebased firms into data centres and cloud businesses worldwide.
Moreover, Singapore is the base of some of the world’s largest data centre portfolio holders which operate several brands in different regions.
As we move into the edge computing age, such portfolios will become invaluable to those who own them, and will either help deliver strong financial results, or potentially large M&A deals.
But let’s break this down.
Most recently, Singaporean-based global investment firm GIC – which manages assets worth $100bn – has become the key investor in the $2bn EdgeCore Internet Real Estate LLC project to build six edge data centres across North America.
National wealth funds are also entering the edge race and trying to suck up as much data centre business as they can beyond Singapore’s shores.
An example is state-owned investor Temasek Holdings, which has reportedly looked into the acquisition of Australian data centre operator NextDC.
Another Singaporean heavy weigh in the data centre arena is STT, which through its data centre group – ST Telemedia Global Data Centres (STT GDS) – operates 58 facilities through a different set of owned businesses such as GDS, Virtus Data Centres and STTelemedia Connect, and associate partners including StarHub and Tata Communications.
STT GDS is one of the largest players in the booming Chinese market, where it has 30 data centres.
Another well-funded Singaporean business looking for a global data centre footprint is Keppel.
Also headquartered in Singapore, the company runs 18 buildings across its overall portfolio. This includes Keppel DC Singapore 1, 2, 3 and 4 in Singapore; Keppel DC Frankfurt 1 in Germany; Keppel DC Dublin 1 in Ireland and the PCCW Global-Keppel International Carrier Exchange in Hong Kong.
The larger portfolio of data centre facilities under Keppel are either owned by the Alpha Data Centre Fund or Keppel DC REIT, the first data centre REIT listed in Asia on the Singapore Exchange in 2014.
These are just four examples of what is happening in Singapore with more expected to come.
The recent announcement by Singaporean tycoon Oei Hong Leong around the creation of a $5bn data centre business from scratch is just yet another sign of the disposable cash in the city-state for investment in the industry.
In what could be one of the largest initial funding rounds thrown into the creation of a data centre brand, the company will be named One Belt One Net, in allusion to China’s One Belt One Road Initiative.
Leong’s $5bn fund will be used to build a data centre, procure equipment and machinery, cloud computing services, software development, and recruit and train staff.
So is Singapore becoming the new epicentre of the data centre world?
Well, Singapore is no New York, London or Tokyo, but Singapore has definitely carved itself into a very high position in the data centre industry and its ability – or the Singaporean businesses ability – to quickly answer to market demand, especially on a cash front, are placing the city at the heart of the global hosting ecosystem.