The Asia-Pacific data center market is extremely diverse, and regional and country-level differentiation is one of its defining characteristics. Today, as more and more American and European data center and cloud providers and their customers are looking east, it is important to be aware of several nuances that define the competitive landscape and put the various outlooks for specific markets into context.
First, let’s identify the region’s sub-markets. Singapore, Australia, Hong Kong and Japan are properly considered mature markets, and this distinguishes them from other Asia-Pacific markets that are still emerging. It is also interesting that Singapore and Hong Kong are really just single-city markets, while Australia and Japan are each home to multiple markets of meaningful sizes. The area can also be thought of in terms of sub-regions. There is Southeast Asia, ANZ (Australia and New Zealand), South Asia, and East Asia, while China, Japan, and Korea all exhibit characteristics that make them perhaps best understood as standalone markets.
The diversity within the region translates to real-life challenges. Serving end users in Asia-Pacific means setting up shop in one of the major markets but doesn’t guarantee reach across the entire region. As a result, service providers and enterprises often have to consider setting up infrastructure in multiple locations.
Maybe the best example of this dynamic is the role of the Chinese market. It is common for organizations to serve China out of Singapore and Hong Kong, but that may not be a sustainable long-term strategy. Organizations and service providers will have to develop local market strategies. Not coincidentally, the wholesale data center market in China is starting to develop and a lot if it is being driven by anticipation of this demand. It works the other way as well. Chinese cloud, e-commerce, social media, and content companies like Baidu and Tencent are beginning to spread their wings and venture outside their domestic market and enter places like Singapore. The Alibaba Cloud is following these end users and standing up cloud infrastructure across the region as well.
Right now, the Asia-Pacific region is in the midst of a surge in wholesale colocation growth driven by the massive-scale cloud providers as they expand aggressively in major hubs such as Singapore, Hong Kong, Tokyo, Sydney, and Melbourne. Competition within the wholesale colocation segment remains intense as data center providers are essentially fighting over a handful of multi-megawatt deals from Amazon, Microsoft, Alibaba, Google, and IBM. This has led to more aggressive wholesale pricing in all major APAC data center markets and emergence of new wholesale colocation providers that are deploying more efficient technologies that significantly lower their construction cost per 1MW of data center capacity. The public clouds have every reason to continue using colocation partners in this part of the world, and the sustainability of this demand is quite healthy. In fact, wholesale colocation – coming from the public clouds - continues to be the primary driver of data center leasing activity in APAC.
Cloud is an important driver but not the only one. Across the region, there are familiar stories: aging data centers, a desire to shift capital expenditures to operational expenditures and taking advantage of economies of scale and expertise of commercial data center providers. This has helped keep demand moving and motivated providers to build out more supply. Key hubs like Singapore and Hong Kong – even with limited land availability – have seen a significant influx of new data center supply coming online over the 2015-2017 time frame. Singapore has seen the most activity. Though the smallest country in APAC from a land area perspective, it has seen over 150 MW of critical IT load capacity enter the market in 2015-2017 from a diverse group of international and local data center providers.
The outlook for the region remains strong. The mature markets continue to benefit from a unique combination of local and international demand that is being pushed by accelerating adoption of cloud. Meanwhile, the region is home to a number of countries – Indonesia, Vietnam, and Thailand – that are just starting to scratch the surface of their data center market potential. But the long-term growth of the region will still be driven by China and India. These two markets have the size and scope to make a game-changing impact on the sector for years and decades to come.
About the author: Jabez Tan is Research Director for North American and Asia-Pacific markets at Structure Research. His coverage areas include retail colocation, wholesale colocation, modular data centers, data center technology, interconnection, and managed hosting.