US$100 billion needed to fund Asia Pacific data centre pipeline, says Cushman & Wakefield

Over US$116 billion will be needed to build out the existing colocation data centre pipeline across Asia Pacific in the coming five to seven years as demand for the sector grows, Cushman & Wakefield estimates in its recent report.

The H2 2024 Asia Pacific Data Centre Market Update report shows the pipeline of colocation projects (excluding hyperscale projects) in the region either currently under construction or in late-stage planning stands at 12,452 megawatts (MW). Using the construction cost^[1] of a mid-specification data centre for each market as a benchmark, the total capital required to build out the pipeline currently sits at US$116.2 billion. The estimated returns is over US$14.9 billion in annual colocation rent which can potentially achieve almost 13% yield-on-cost ratio for developers.

Five markets account for 80% of pipeline

Of the 12.45 gigawatts (GW) in the pipeline (which excludes land banking activity and projects in early planning stages), over 80% is held in five markets: Japan, India, Australia, the Chinese mainland and Malaysia.

At a city level, Tokyo has the strongest pipeline within Asia Pacific at 1,656 MW, followed by Mumbai (1,143 MW), Johor (1,049 MW), Sydney (783 MW), and Beijing (613 MW). In these key cities, gross yield on cost increases to 14%.

Pritesh Swamy, Head of Research & Insights, Data Centre Group, Asia Pacific said amid rising demand, the Asia Pacific development pipeline has exceeded existing operational capacity by three times. This has increased investment in this sector as investors are drawn by the massive potential.  “This is evidenced by the sector’s increasing share of annual real estate investment volumes,” he concluded.

Gordon Marsden, Head of Capital Markets, Asia Pacific, said that the high CAGR of about 20-plus per cent and great rental returns mean that the sector would continue to attract more investors. Although consolidation is expected as the sector matures, in the near term, “the capital requirements mean the sector continues to attract vast capital at a faster rate than other asset classes in the CRE universe.” He added that a flurry of valuation activity in response to recent transactions in Japan, Korea and Singapore mostly involving legacy data centres has provided some clarity around pricing in the past 18 months.

Capital Requirements by market (ranked by capital requirement)