Telecoms & Tech: Data Centers in spotlight

Asia Pacific is home to world largest internet population and is witnessing the global megatrend of massive digitalization of consumer lifestyles and enterprise sectors. Progress and economic development are now clearly linked to, and enabled by, the availability of critical digital infrastructure. In this context APAC’s Data Center (DC) market, which was US$25.5bn in 2022, is estimated to reach US$51.8bn by 2028 at a CAGR of 12.5%, according to Structure Research data.

This growth can largely be attributed to rapidly expanding regional and global DC platforms, which are building capacity for the insatiable demand of their hyperscale clients, often with the backing of longer term-oriented infrastructure funds or private capital. The industry’s huge capital intensity is only increasing as capacity requirements grow exponentially, driven by the acceleration of AI and machine learning adoption, which are in turn enabled by advancements at the silicon level.   

Over the past few years, APAC saw more tactical M&A in this industry, often related to telco assets, helping accelerate market entry or establish a growth footprint. This is in contrast to multi-billion buyout deals in mature western markets, which are now being digested with the focus turning to executing organic growth.

In the prevailing macro environment and with limited availability of targets, the organic build approach presents more compelling economics than purchase transactions with inherent premia. As such in 2024 we expect equity and debt capital to favor the deployment of greenfield and brownfield DC capacity, while creating opportunities for platform, country, or asset level investments. At the same time, we see potential for a few large transactions, allowing early investors to monetize their efforts and deep-pocketed buyers entry into an established pan-regional footprint, growth pipeline and/or to gain capacity in tier-1 markets where organic opportunities remain constrained.

The inherent capital intensity could also result in potential transactions focused on separating portfolios into development and stabilized assets, aimed at creating diverse risk-reward opportunities and attracting different pools of capital to further support the sector in the long term.

Finally, with increased focus on sustainability considerations, we expect digital infra players to become more involved in renewable power across generation, transmission, and storage, helping address critical bottlenecks for long term industry growth. This will also imply cross-sector collaboration and investment opportunities whereby industrial players and large conglomerates will seek exposure to the tremendous growth potential of the DC segment.