Scarcity and high Inflation drop data centre transactions

There are four factors in total that contributed to the decline.

A projected rebound in the Asia-Pacific data centre market is expected this year following a 26% decrease in total transaction volume in 2023. Dedi Iskandar, Head of CBRE Data Center Solutions, Advisory & Transaction Services, Asia Pacific, discussed the factors behind this decline and highlighted the countries poised to lead the recovery.

Iskandar identified four primary factors that contributed to the decline in transaction volume, namely high inflations in the Asia Pacific, the rising interest rates, the scarcity of the power resources, and the available affordable land for the data centre usage.

Despite these challenges, certain countries in the Asia-Pacific region are expected to drive the market rebound in 2024. “Markets such as Japan and Australia, which is a tier one market with the stables and predictable demand projections that will drive the rebounds for Asia. Pacific's on the tier one markets, whereby on the emerging markets we are seeing the markets of India and South Korea will be the potential countries to lead the rebounds,” Iskandar explained.

Japan and Australia, with their stable and predictable demand, are seen as key drivers in the tier-one markets. Meanwhile, India and South Korea are poised to lead the rebound among emerging markets.

Rising interest rates have had a dual impact on data centre investments in the region. “One where the rising interest rates in other parts of the world drive the capitals to go outside of Asia Pacific, and thus it created the scarcities of investments. The second thing is that rising interest rates increase the borrowing costs of data centres,” Iskandar noted. 

This increase in borrowing costs makes it difficult for data centre operators to proceed with investments, particularly in high-interest-rate environments.

Beyond economic factors, other significant challenges include rising construction costs and manpower availability. “Construction costs for data centres are increasing because of the supply chain issues. On top of it is the availability of the manpower to run the data centre operations, where it's not distributed equally between the tier one markets and the tier two markets,” Iskandar stated.

Artificial intelligence (AI) is seen as a critical component in addressing some of these challenges. “AI is certainly a big push for the demand, and it can resolve a lot of uncertainty in terms of the domestic demand itself within the countries,” Iskandar said. AI drives demand in emerging markets with cheaper power costs and promotes innovations that enhance cost efficiency and service delivery.