Data centres: expanding data needs driving growth

JLL recently released a 2023 Global Data Centre Outlook and in it, we explore the challenges, opportunities and demand drivers that will shape the industry in the year ahead. We also explore how these dynamics are impacting the investment and development markets.

Hyperscalers and edge data centres are the fastest growing segments in the space. The former responds to rising demand while the latter helps to address latency issues and allows for diversification. The stability and lower risk in regional hub markets such as Hong Kong, Tokyo and Sydney will support growth despite higher land prices and elevated utility costs. Meanwhile, the rise of artificial intelligence (AI), machine learning and augmented reality are also driving growth in both primary and secondary markets.

ESG is top priority for firms engaged in all industries and for data centres, addressing energy use and emissions is an imperative. Climate regulations and independent initiatives are fuelling improvements in technology and innovative ways to source power. Upon the recent lifting of the moratorium on data centre development in Singapore, developers applying to be part of phase I of the pilot programme were required to meet decarbonisation and efficiency targets, and potential projects were also evaluated on economic impact.

Due to supply chain disruptions and geopolitical tensions, data centre construction delays remain commonplace in all three regions. These issues are likely to persist throughout the remainder of this year then moderate in 2024. In an attempt to mitigate these challenges, developers need to factor in longer lead times while operators are using multi-sourcing to reduce the risk of relying on a sole supplier. Friend-shoring and nearshoring also serve to offset delays due to political tensions.

Data centres remain in high demand for investors as strong occupier demand keeps vacancy rates at record lows. While investment market activity has been curtailed by supply chain delays, purchasing existing assets and sale and leaseback opportunities remain on the table. Development projects, particularly value-add opportunities, are also on the radar for investors.

You can download the full report here.