KKR and Bain Capital are making significant investments in data centers in Asia, capitalizing on the region’s increasing demand for computing and data storage driven by the surge in artificial intelligence (AI) and cloud services.
Similar to the trend in the United States, Asia is experiencing a growing need for data centers due to the expansion of cloud services by tech giants like Amazon and Google, the rising demand for capacity fueled by the recent wave of generative AI, and the growing population in the region.
Bloomberg reported that KKR envisions a potential equity investment of $1 billion in data center projects in the Asia-Pacific region in the coming years, with returns aligning with the mid-to-high teens, according to Projesh Banerjea, the firm’s director of infrastructure.
The optimism is fueled by the expectation that Asia’s contribution to hyperscale cloud revenue will increase from 29% to around 33%, reaching $173 billion by 2028, as per Cushman & Wakefield.
Despite the promising prospects, challenges exist. The complexity and time-consuming nature of data center development, coupled with the highly fragmented market in Asia, pose obstacles.
Investors and operators must navigate diverse regulatory landscapes across countries. For example, China is considering easing cross-border data controls, and Singapore has lifted a moratorium on data center construction but maintains selectivity in awarding projects.
Jonathan Zhu, partner and co-head of Bain Capital’s Asia private equity business, emphasizes continued investment in China and Southeast Asia, as well as exploration of opportunities in other developed regions in Asia. The growth in the Asian market, driven by cloud and AI, is expected to intensify competition for assets and resources.
Investors are aware of the importance of environmental, social, and governance (ESG) factors, with some expanding to new locations as part of their ESG strategy. Cooling systems are also a focal point for improvement in data centers, addressing challenges posed by increased GPU usage, which consumes more power and generates more heat than traditional CPUs.
However, there are risks associated with government regulations around data privacy, national data sovereignty, and sustainability. Investors and operators need to stay informed and adapt to changes to avoid potential setbacks, according to Glen Duncan, Asia-Pacific director of data center research at Jones Lang LaSalle Inc.
