3 December 2012

The ever increasing amount of data transferred and stored as a result of the exponential increase in the speed and reach of the Internet has been brewing a niche yet opportune property sector – data centre – in Hong Kong. Colliers International has recently released a white paper “Data Centre in Hong Kong” which discusses the demand, supply, challenges and opportunities associated with this property sector.

Globally, there is no doubt that the number of Internet users has been increasing amidst the continued development of information and computer technology. In Asia, the number of Internet users has leapt from about 361 million in 2000 to 2,267 million in 2011, according to Internet World Stats, and the proportion of Asian Internet users increased from 32% of world’s total to 45% of the pie worldwide during the same period.

In Hong Kong, the government survey conducted in 2009 showed that the FIRE industry (i.e. finance, insurance, real estate and business services) has the highest Internet penetration rate – 80% of enterprises in the FIRE industry have Internet connections – among all industries in the local market. Growing reliance on the Internet for financial industry operations can be attributed to, for example, increasing online banking services provided to their clients.

As a result, there has been an increasing real estate requirement for the storage of a range of computer-related hardware equipment. Stand-alone storage on site is the immediate solution, particularly for small to medium-size enterprises. However, off-site storage and outsourcing to third-party managers have gradually been accepted by many corporations, thus supporting the growth of the so-called “Data Centres”.

Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International said, “The average rent in CBD locations of Hong Kong is rather expensive at HK$100 per sq ft per month or above, which makes on-site storage of computer facilities a premium. Therefore, given real estate rental cost in some parts of the New Territories at about HK$10 – HK$15 per sq ft per month, it is much more cost-effective to relocate and consolidate computer hardware to decentralised locations.”

Alternatively, outsourcing all of storage requirements to third-party managers is also another cost- saving option.

Meanwhile, Hong Kong has been widely accepted by industry players as a safe place within the Asia region for setting up their primary and/or backup data centres due to institutional regulatory issues such as data privacy control. Also, Hong Kong’s favourable geographic location that is not exposed to natural disasters such as earthquakes is another advantage as that means a safe and stable operating environment for data centres.

The existing high-tier data centres in Hong Kong are mostly located in Kwai Chung, Tsuen Wan, Shatin, Tseung Kwan O and Kowloon East due to the substantial electricity supply and accessibility to multiple telecommunications networks by various providers in these areas.

According to a study commissioned by the Office of the Government Chief Information Officer, the demand from data centres in Hong Kong is expected to increase 78% from 2.3 million sq ft in 2009 to 4.1 million sq ft in 2015.

In anticipation of the expanding demand, individual real estate industry players have started to hone in onto the business opportunity of running a data centre. Lo said that industrial building owners interested in converting their en-bloc premises into data centres can ride on the “Revitalise Industrial Buildings” policy that the government implemented in April 2010. It allows property owners to apply, at nil waiver fee, for change of use of their eligible industrial buildings for the lifetime of the building or the current lease period, whichever is earlier.

Lo added that the Lands Department also welcomes applications made by the end of March 2016 to develop high-tier centres on industrial sites through lease modification and undergo partial conversion of existing industrial buildings for data centre use. The new “partial conversion” measure provides more property options for setting up data centres and in particularly benefits small to medium-size operators, whose floor area requirement is not sizeable enough to develop a data centre in industrial estates for their own.

For high-tier data centres, they are characterised by their high level of service availability. Therefore, frequent relocation is not an option for data centre operators. Lo highlighted that buildings owned by long-term investors and offering long lease term with renewal options are favourable by high-tier data centre operators.

With the government’s intention to encourage data centre development in Tseung Kwan O Industrial Estate and additional power supply capacity coming on line in the next few years, some major operators have been acquiring and converting existing buildings in the district’s industrial estate into data centres. Looking ahead, combining participation of both the government and operators, there is high possibility that Tseung Kwan O Industrial Estate will transform into a cluster of large-scale high-tier data centres in Hong Kong.

Colliers International | Myanmar 11/F, Units 10-12, Sule Square Office Tower, 221 Sule Pagoda Road, Kyauktada Township, Yangon, Myanmar​ | Tel: +95 9 314 916 78