Is New Zealand on the cusp of greater data centre demand?
18 May 2021
Pandemic led demand for video conferencing, online schooling, entertainment, social networking and platforms to support remote working led to a 47% y-o-y surge in global internet traffic in 2020, eclipsing initial forecasts of 28%as showcased in our latest Asia Pacific Data Centre Trends H2 2020 report.
This unprecedented increase in demand led to an obvious spike in the requirements for data storage, computing and networking that was unseen. This had dramatic flow-on effects in the already established Asia Pacific Tier 1 markets (Tokyo, Sydney, Singapore and Hong Kong SAR) with data centre net absorption reaching 322 MW in 2020, double that of 2019 and setting an all-time high.
Most demand in 2020 originated from hyperscale cloud providers contributing around two-thirds of annual absorption. This demand was led by gaming, over-the top media services, online content and streaming providers.
Other major demand drivers include global technology services companies catering to growing corporate requirements for remote working and other virtual arrangements. Looking further ahead, the wider adoption of 5G, further digitalisation of healthcare and other government services will be the primary demand drivers of data centre growth within Asia Pacific.
In developed markets, data centre operators are now seeking expansionary opportunities in other cities to reduce latency while enhancing local data exchange efficiency. Overall vacancy in Tier 1 markets continued to trend downwards over the year, falling to 13.9% as of the end of Q4 2020. As an example, Sydney is the Tier 1 market, with Melbourne now emerging from a Tier 2 position to become a strong provider of data centre services. This reduces latency, increases capacity and vacancy opportunities.
Microsoft is establishing their first data centre in Auckland which will be operational by 2022. This indicates that the market is open to hyperscale cloud providers who are watching the market closely. Typically, once a hyperscale provider enters the market, the rest should quickly follow suit to ensure they don’t lose market share – hence the question is not if there is data centre and cloud growth potential in New Zealand, but when other hyperscalers will follow suit and the magnitude of that growth
Hyperscale end-users typically consider two options, taking up space and/or building their own themselves or in partnerships with developers / operators; these actions may also happen in conjunction with each other. A self-build approach may have a lag of 15+ months which is too long speed-to-market for players in fast-moving market sectors such as cloud service providers and OTT content provision. Therefore, many hyperscalers require a data centre operator to deliver on their behalf. New Zealand provides strong market infrastructure and robust regulatory requirements, hence commercially speaking new hyperscale entrants should be amenable to taking up colocation space or build-to-suit projects with a local or regional provider, for instance in the case of Canberra Data Centres’ recently announced hyperscale-focused projects around Auckland.
What does a data centre infrastructure primarily require?
The sector continues to lure investors keen to avail of the opportunities resulting from massive demand for data storage and computation, as well as the prospects data centres offer for asset diversification and enhanced risk-adjusted returns. Our 2021 Asia Pacific Investor Intentions Survey uncovered stronger interest in merging asset classes with data centres increasingly coming to the fore among investors.
Though there has been steady increase in data centre investment, operational risk and securing planning approvals remain a challenge. To mitigate these risks, many investors form partnerships with experienced data centre operators to minimise exposure. For investors pursuing this approach, CBRE advises they target second tier data centre operators seeking to expand their scale and capacity in order to become tier one operators. This is where New Zealand is primed and ready to go with Auckland and Hamilton identified as our core hubs and Wellington as an edge location.
The opportunity for our industrial sector can be seen in the strength that data centre operators offer as a master lessee. They seek long tenure tenancies which are low maintenance, secure and if set up correctly attractively profitable.
Looking at trends, a taste of how big this market has the potential to be, hyperscalers can take upwards of 10MW in a single transaction in mature data centre hubs such as Sydney and Singapore, compared to current New Zealand colocation market of 21 MW in total IT capacity. An exciting sector to keep a very close eye on.
This unprecedented increase in demand led to an obvious spike in the requirements for data storage, computing and networking that was unseen. This had dramatic flow-on effects in the already established Asia Pacific Tier 1 markets (Tokyo, Sydney, Singapore and Hong Kong SAR) with data centre net absorption reaching 322 MW in 2020, double that of 2019 and setting an all-time high.
Most demand in 2020 originated from hyperscale cloud providers contributing around two-thirds of annual absorption. This demand was led by gaming, over-the top media services, online content and streaming providers.
Other major demand drivers include global technology services companies catering to growing corporate requirements for remote working and other virtual arrangements. Looking further ahead, the wider adoption of 5G, further digitalisation of healthcare and other government services will be the primary demand drivers of data centre growth within Asia Pacific.
In developed markets, data centre operators are now seeking expansionary opportunities in other cities to reduce latency while enhancing local data exchange efficiency. Overall vacancy in Tier 1 markets continued to trend downwards over the year, falling to 13.9% as of the end of Q4 2020. As an example, Sydney is the Tier 1 market, with Melbourne now emerging from a Tier 2 position to become a strong provider of data centre services. This reduces latency, increases capacity and vacancy opportunities.
Is New Zealand ready for impact?
With New Zealand classified as an emerging data centre market, we are potentially on the cusp of greater demand for data centre options.Microsoft is establishing their first data centre in Auckland which will be operational by 2022. This indicates that the market is open to hyperscale cloud providers who are watching the market closely. Typically, once a hyperscale provider enters the market, the rest should quickly follow suit to ensure they don’t lose market share – hence the question is not if there is data centre and cloud growth potential in New Zealand, but when other hyperscalers will follow suit and the magnitude of that growth
Hyperscale end-users typically consider two options, taking up space and/or building their own themselves or in partnerships with developers / operators; these actions may also happen in conjunction with each other. A self-build approach may have a lag of 15+ months which is too long speed-to-market for players in fast-moving market sectors such as cloud service providers and OTT content provision. Therefore, many hyperscalers require a data centre operator to deliver on their behalf. New Zealand provides strong market infrastructure and robust regulatory requirements, hence commercially speaking new hyperscale entrants should be amenable to taking up colocation space or build-to-suit projects with a local or regional provider, for instance in the case of Canberra Data Centres’ recently announced hyperscale-focused projects around Auckland.
What does a data centre infrastructure primarily require?
- Strong and uninterrupted power supply
- Dependable fibre connectivity
- Mitigation of natural hazards and risks
- Cost and availability of land, construction, labour both during development and operation
What are the opportunities for the commercial real estate sector?
The sector continues to lure investors keen to avail of the opportunities resulting from massive demand for data storage and computation, as well as the prospects data centres offer for asset diversification and enhanced risk-adjusted returns. Our 2021 Asia Pacific Investor Intentions Survey uncovered stronger interest in merging asset classes with data centres increasingly coming to the fore among investors.
Though there has been steady increase in data centre investment, operational risk and securing planning approvals remain a challenge. To mitigate these risks, many investors form partnerships with experienced data centre operators to minimise exposure. For investors pursuing this approach, CBRE advises they target second tier data centre operators seeking to expand their scale and capacity in order to become tier one operators. This is where New Zealand is primed and ready to go with Auckland and Hamilton identified as our core hubs and Wellington as an edge location.
The opportunity for our industrial sector can be seen in the strength that data centre operators offer as a master lessee. They seek long tenure tenancies which are low maintenance, secure and if set up correctly attractively profitable.
Looking at trends, a taste of how big this market has the potential to be, hyperscalers can take upwards of 10MW in a single transaction in mature data centre hubs such as Sydney and Singapore, compared to current New Zealand colocation market of 21 MW in total IT capacity. An exciting sector to keep a very close eye on.