Field Research: “Comparing data centres in Asia and Australia”
Data centres in Asia could provide greater returns than in Australia on paper but on a risk-adjusted basis Asia is not so straightforward.
That's the view of Roy Wong, the Singapore-based Executive Chairman of edge data centre company DC Alliance.
Asia is a hot spot for the industry, he says, noting KKR's deal in September to acquire a US$800 million 20 per cent stake in Singtel's regional data centre business which indicates that Singtel is looking to grow its portfolio in ASEAN markets.
However, there are challenges for Australian data centre businesses looking to expand into Asia.
"Just looking at the population size in Asia and its lower adoption rate of cloud, it could be a big market. But the environments in Australia and Asia are very different. Many businesses in developing countries in Asia are still family run and the older generation still holds the reins on the business - they will be less adaptive and slower to digitalise, but dynasties will change and then the boom will come, it's only a matter of time," Mr Wong says.
"You also can't just take an Australian working model to Asia, not in terms of the facilities because data centres work the same way whether in Australia or Asia, but from a business mentality."
DC Alliance entered the Australian market when it took over Pier DC's five-year-old Tier III facility data centre in Perth in 2020. It has already built up two megawatts of power and is looking to add another two megawatts in the next year and a half.
"It's about slow and steady growth amid inflationary pressure and power costs - our nearest competitors are giants so we're having to find ways to not only survive but also flourish," Mr Wong says.
"We're seeing across the economy - not just in data centres - the 'too big to fail' theory play out which is challenging for small and medium-sized enterprises."
However, data centres are here to stay and will continue to be a growth industry in Australia, he says. The industry in Sydney and Melbourne may be close to mature but there are still opportunities in Darwin, Brisbane and Perth.
"No one was looking at or talking about Perth three years ago, but people are now beginning to change from why Perth to maybe Perth and in 2-3 years' time to YES Perth."
The demand will come from cloud rather than AI, Mr Wong says.
"There's still a lot of potential for cloud to grow and if AI really takes off then the demand for data centres will boom, although it will be a long time before AI becomes mainstream and commercialisation is a long way away."
Microsoft's recent announcement that it will invest $5 billion into data centres has excited the industry, according to Mr Wong, but 2024 will still be a real test.
"Many small and big enterprises in all industries have shut down their capex and cut down their budgets in the past year as interest rates have risen.
"The next nine months will be crucial, whether all this hype, all this money, all these investments - is it just talk or is it real money? Fundraising will not be easy. Companies who have relied on free money to grow during the cheap money days will find it tough."
This article was written and published by Field Research. Reproduced with permission.