Hong Kong's data centre dreams hit by crippling land shortage

China might emerge as an attractive alternative to the costly SAR.

A stable and pro-business environment bodes well for Hong Kong’s ambitions of being a consolidation point for data centres in North Asia as cloud providers and Chinese powerhouses continue to set up shop in the SAR with AWS, Microsoft and Mainland-based BAT amongst the big-ticket names in the scene. 

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Global Switch earlier opened the first phase of its Tseung Kwan O facility by end-2017 as it aims to build up a total capacity of circa 60 MW whilst Mega Plus boasts of a 24 MW build, data from real estate consultant JLL show. 

"Several big-ticket transactions and leasing deals with data centres were recorded in the [third] quarter, which altogether have brought the total area of purchased or leased data centres to 2.6 million sq. ft. GFA in 2018," CBRE said in a previous report. This includes SIngapore-based AirTrunk which leased 187,000 sq ft in a Tsying Yi warehouse along with the $770m acquisition by GDS Services of a Kwai Chung centre with plans to redevelop it into a 195,000 sq ft data centre.

To capture the opportunity from the region’s growing data connectivity, a 2.74 hectare-site was recently released by the government in Tseung Kwan O with bids due by the end of 2018. The site could yield in excess of 1m sqft and a potential capacity of up to 200 MW, lending support to Hong Kong’s data centre dreams. 

“The primary markets of Singapore, Hong Kong, Sydney and Tokyo have been the preferred locations for data centre investments. These cities’ robust infrastructure, connectivity and relative ease of doing business will see them remaining as operator and investor favorites for the foreseeable future,” the report’s authors said.

Hong Kong’s estimated capacity ranks third in the so-called Big 4 data centre markets at 285 MW which trails behind Singapore at 330 MW and Tokyo at 315 MW. Sydney is also making its mark with an estimated capacity of 197 MW.

However, the city’s severe land shortage could hit these ambitions which could push costs up until new sites could be unlocked. Additionally, the site at Tseung Kwan O may not necessarily cool demand as core and shell could be phased over 7 years and delivery of actual facility could be phased over a longer period.

As such, parties have been doubling down to unlock more land options where it competes with housing in land requirements. “In the meantime, pursuit of brownfield options seem to be the preferred strategy for several operators. They provide an alternative choice in terms of location to TKO,” it added.

If relevant parties do not get their act together soon, Hong Kong may run the risk of falling out of the Big 4. “China may become an alternative in future,” the report’s authors noted.

Photo from HKNet