Southeast Asia to Lead Data Centre Growth in the Next 5 Years

Indonesia holds tremendous potential for data centre market growth with high mobile usage and young demographics. 

The Southeast Asia (SEA) region including Singapore, Indonesia and Malaysia will be the fastest growing region for co-location data centres over the next five years, with its market size expanding by a compounded annual growth rate (CAGR) of 13 per cent between 2019 and 2024. 

Latest research by Cushman & Wakefield and Structure Research projects data centre growth in Southeast Asia to be spurred by the rapid pace of digitization and the surge in demand for cloud-based services as a result. 

Recent reports point to Indonesia having the greatest mobile e-commerce penetration rate, while the highest number of mobile banking usage is observed in Thailand. A study by Google and Temasek Holdings approximated that SEA’s internet economy will expand expeditiously from US$72 billion in 2018 to a staggering US$240 billion by 2025, driven by mobile internet services. SEA’s internet penetration rate was only 25 per cent five years ago. This figure has since improved tremendously and stands at 63 percent currently. Approximately 415 million people in SEA are able to access the Internet, which was a huge contrast to the 380 million people just a year ago. Compared to the United States and the United Kingdom, which have rates of above 90 per cent, mobile usage in SEA has huge potential for expansion. 

Major corporates such as Google, Alibaba Group, Amazon Web Services have expanded their cloud infrastructure footprint to facilitate their respective expansion plans over the last few years and momentum is expected to continue. Alibaba Cloud opened its second data centre in Indonesia. Google Cloud and Amazon Web Services have also announced plans to set up new data centres. 

Although the rest of the SEA countries such as Malaysia, Indonesia, Thailand and Vietnam rank relatively lower in the competitiveness index, the potential commercial upside for data centre players is significant. Indonesia in particular has favourable demand-supply dynamics as Indonesia requires data to be stored locally. This will in turn spur demand for data centres to be set up locally. 

Wira Agus, Director Industrial & Land Sales at Cushman & Wakefield Indonesia said, “We have seen the rapid growth of e- commerce companies in Indonesia and given the continuing investment in this sector, this growth will continue. With data centres as the ‘backbone’ of these companies, the outlook for the date centre industry in Indonesia is very promising. But in order for Indonesia to move up in the rankings, it will have to overcome the challenges of delivering a consistent and reliable power supply as well as enhancements to the fiber optic infrastructure, both of which are essential for data centres.” 

Christine Li, Head of Research for Southeast Asia said “As a whole, Southeast Asia as a region offers many advantages for data centre players with a longer-term view. Until the levels of infrastructure in the emerging markets of Thailand, Indonesia and Vietnam are sophisticated enough to support the smooth operation of data centres in these markets, data centre players will continue to leverage the twin strengths of Singapore and the emerging markets of Southeast Asia to navigate the next wave of data centre development. They will favour Singapore for its relative security to store mission critical data and store the business-as-usual non-mission critical data in the neighbouring countries. 

The second fastest growing region is the Asia Pacific, which is expected to grow steadily at around 12 percent CAGR over the same period. North America is the largest co-location data centre by market size at US$17.2 billion currently but the Asia Pacific region is expected to take over the top position by as early as 2021. The total market size for Asia Pacific co-location data centres is forecast to be around US$28 billion by 2024, 20 per cent higher than the US$23.4 billion market size of North America. 

A detailed analysis of success factors across 38 countries and cities globally also shows the strength of Singapore’s data centre market. Singapore is ranked the third most robust data centre market, the only data centre market in Southeast Asia to have featured in the global ranking. Its ranking jumped four spots from seventh to third and retained the top spot in the Asia Pacific region since two years ago when the study was conducted. The index identifies the top competitive factors such as connectivity, ease of doing business, political stability, corporate tax rate, natural disaster, energy and security that are likely to affect the successful operation of a data centre. Countries and cities are assigned scores based on the weightage allocated to each of the factors. 

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