The global spotlight consistently focuses on China, the dominant force in emerging markets, as even the slightest changes in its GDP attract worldwide attention (Wisevoter, 2021). However, investors and multinational corporations are now redirecting their attention towards the ten vibrant markets comprising the Association of Southeast Asian Nations (ASEAN).
Established in 1967, ASEAN presently comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. These economies are at varying levels of development, yet they all possess significant growth prospects.
The expansion of the ASEAN economy is propelled by multiple factors, such as the influx of foreign investments, the expansion of manufacturing, the rising strategic significance in global supply chains, and the increasing investments in infrastructure, including the digital economy (Allurentis, 2023).
The rapid adoption of digital technology in ASEAN is set to persist, driven by tech-savvy consumers, substantial investor funding in technological advancements, and government initiatives promoting digital transformation (World Economic Forum, 2020). By 2030, the region is projected to have approximately 575 million internet users, with digital technology becoming an integral part of everyday consumer experiences.
Opportunities in the Industry
Currently, Southeast Asia is a vibrant emerging market with over 400 million internet users and a booming digital economy (Kameke, 2023). In line with the number of internet users in the region, according to Matthew Benic, Head of Commercial at Keppel Data Centres, “there’s so much opportunity in the data center industry in Southeast Asia at this moment as we witness companies move their capacity closer to the region particularly in ASEAN countries.”
The data center industry in South east Asia is experiencing significant growth and offers ample opportunities for companies in the region. With the increasing digital transformation and the rising demand for cloud services, many businesses are shifting their capacity closer to Southeast Asia, particularly in ASEAN countries.
According to Cushman & Wakefield, Southeast Asia’s data center market is witnessing strong growth, driven by both domestic demand and the expansion of international companies into the region. Additionally, data center capacity in Southeast Asia is expected to more than double by 2024, reaching over 1,000 megawatts (MW).
Furthermore, Singapore is the leading data center hub in the region. Singapore has the largest data center market in Southeast Asia, attracting investments from global technology companies due to its strategic location, robust connectivity, and favorable business environment.
In addition to Singapore, other ASEAN countries are also experiencing increased data center investments. Countries such as Indonesia, Malaysia, Thailand, Philippines, and Vietnam are emerging as key players in the region’s data center industry. These countries offer favorable conditions, including growing internet penetration rates, expanding digital economies, and government initiatives to attract data center investments.
The Interplay Between Macroeconomic Factors and Local Regulations
The data center industry is poised for sustained growth due to various factors. According to Benic, those factors include economic expansion, technological advancements, and the need for localized and efficient data processing capabilities.
Additionally, the interplay between macroeconomic factors and local regulations can also shape the future development of the industry.
“In sort of economic fundamentals, you know you’re looking at growth in GDP if the populations are becoming wealthier and more sophisticated, as well as the continuous proliferation of technology,” said Benic
Economic fundamentals and GDP growth: The growth of Gross Domestic Product (GDP) indicates a healthy economy. As economies expand, populations tend to become wealthier, leading to increased consumption and demand for various goods and services, including technology. This economic growth contributes to the overall expansion of the data center industry.
Moreover, as populations become wealthier, they have more disposable income to spend on technology products and services. This drives the demand for data centers, which form the backbone of digital infrastructure and enable the storage, processing, and delivery of data for various purposes.
Proliferation of Technology: “People are moving to the cloud. We live on our phones. These days if we lose our phone, our life is kind of over for a few weeks until we’re able to replace everything and place it on your cards,”
Advancements in technology have revolutionized the way people live and work. The cloud has become a popular means of storing and accessing data, while smartphones have become integral to our daily lives. These trends necessitate robust data centers to handle the increasing volume of data and support the services and applications we rely on.
Aside from what has been mentioned, Benic believes that “there are broader macroeconomic factors that are going to support the data center industry for a number of years to come,”. The data center industry is influenced by broader macroeconomic factors, such as economic policies, regulatory frameworks, and global market trends. These factors can impact investment decisions, market competition, and the overall growth trajectory of the industry.
“More locally, things like the moratorium in Singapore, where you’re starting to see customers and the cloud companies start to push back. Capacity is being delivered closer to the end user,”
Impact of local regulations: Regulations like the moratorium in Singapore highlights the influence of local regulations on the data center industry. Government policies, including restrictions or incentives related to data center construction and operation, can shape the market dynamics and affect the strategies of cloud companies and other data center providers.
Localization of data centers: Delivering data center capacity closer to end users is driven by the increasing demand for low-latency services, such as real-time data processing and streaming. By establishing data centers in proximity to users, companies can reduce network latency and improve the overall user experience.
Trade-off Between Cost and Sophistication
In terms of the economics of operating data centers in ASEAN differ from other regions, according to Benic, the decision of which market to operate in depends on various factors such as budget, business requirements, and the ability to navigate the challenges posed by the chosen market.
Land Prices: ”In terms of land prices, in Singapore, the costs of acquiring land in some of these markets, or even other tier 1 markets like Tokyo , Hong Kong, or Sydney, it’s extremely expensive. So you can get a little bit more value for money from a land acquisition standpoint in some of these tier 2 or tier 3 markets,”
Acquiring land in tier one markets can be quite costly. On the other hand, in tier two or tier three markets, the cost of acquiring land may be comparatively lower. Thus, one can potentially get more value for money in terms of land acquisition in these markets.
Supply Chains: “Some of the supply chains are absolutely a little bit less sophisticated. Some of the delivery can be a little bit less sophisticated so that creates challenges from an execution standpoint and stops huge problems for everybody in the industry,”
The infrastructure and processes involved in the movement and distribution of goods may not be as advanced or efficient. Consequently, this can create challenges when it comes to executing business operations and can cause problems for the entire industry.
Balancing Sustainability and Cost-Efficiency
Sustainability is becoming a huge issue and cloud companies are all very focused on their ESG commitments, according to Benic.
Data centers, which are vital for cloud computing and storage, have a substantial impact on ESG reporting and investor perception. As a result, data center operators are increasingly focused on addressing their environmental impact. This includes collaborating with solar and energy companies to incorporate renewable energy sources into their operations.
“From a cost standpoint, renewable energy is becoming less and less expensive. We’re starting to see some areas where parity and perhaps even a little bit lower than grid power and I think the DC industry can act as a real driver of change because of the level of Consumption that we have, the power consumption that we require to run down the facilities,” said Benic.
The integration of renewable energy is gaining momentum due to several factors, including the declining cost of renewable energy options. In certain regions, renewable energy costs are becoming comparable or even lower than traditional grid power.
This trend presents an opportunity for data centers to play a pivotal role in driving the adoption of renewable energy. With their high power consumption requirements, data centers can act as catalysts for change by partnering with renewable energy developers to initiate and support projects.
“We can really start to act as a key off-type for a lot of renewable energy developers to be able to get projects off the ground and to start to be able to drive a little bit of change and be a real positive force to change in the development of renewable assets,”
Data centers can contribute to positive change and be viewed as a force for sustainable development by actively engaging in the transition to renewable energy. This shift not only aligns with the increasing focus on ESG commitments but also demonstrates the potential for the data center industry to drive broader adoption of renewable energy sources and foster a more sustainable future.