Demand for data centers shows no signs of decreasing

The real estate market activity has picked up once again in the first quarter of 2023. In the data center sector, real estate advisory firm JLL sees market activity increasing in the next three to four years, and presents an outlook in their latest market overview, “The Growth and Opportunities in Data Centers.”

“We have strong demand for data centers in the Philippines from overseas data center developers. Most of them are already in the country and are looking for suitable lands or sites, or buildings to build data centers in,” says Min Aung, JLL Philippines’ Director for Data Centers under the Project Development and Services business.

Asia-Pacific, including emerging markets, is seeing significant growth in the sector. “The pandemic brought a huge shift to the way we deliver products and IT. There’s a push to digitize everything–food, ride-hailing, every service. The efficiency of these services rely on digital infrastructure,” says Chris Street, JLL APAC’s Managing Director for Data Centers.

Street says the Philippines is in a very good place for investment, as the country is strategically in a transpacific route, and the population’s data usage makes a good case for demand.

Carl Dizon, JLL Philippines’ Senior Analyst for Capital Markets, shares a timeline of data center development in the Philippines. “The growth started with telcos needing data for their own operations. The exponential advancement in internet technologies within the past decade resulted in data center demand from not just telcos, but both enterprise and hyperscale developers.”

Depending on whether the project is greenfield (built-to-suit on land) or brownfield (retrofitted in a building), data center developments have varying requirements.

Considering the Philippines' geography, Min says that the ideal land size is at least 10,000 sqm for greenfield, and minimum gross floor area (GFA) of 6000 sqm for brownfield, preferably in an industrial zone. Also, data centers require a minimum 34.5KV power supply feed, and access to water supply and network service providers.

The Philippines as a data center market is still young but full of opportunities. “In order to jump into the data center business, there needs to be a basic understanding of their technical, stringent requirements,” advises Min.

As it is, Min says there are still opportunities to improve the sector and bring in more investors. “In order to keep up with the demand, we have to ensure that data center projects here keep working 24/7 by improving access to networks and utilities,” he adds.

Interest rates remain a headwind, as high interest may push back investors. “Data centers are huge investments, and the assumption is that the payback is also huge. But with the interest rates, it really depends on the strategy of the investor and the length of the cycle they’re willing to wait for,” says Street.

Hyperscalers are seeing a good case for the Philippines. Dizon says “The Philippines still leads in internet usage, especially social media. Our use of data keeps growing—no one is deleting photos and have new apps on their phone—so all that data collected has to go online for storage.”

Dizon also says that increased data localization policies will push a case for bigger demand in the Philippines. “Currently, we are seeing more focus on data security. Eventually, a push for data sovereignty—requiring data collected from a population to be physically stored within the borders of the country—will guarantee demand for data center space in the Philippines.”