Moody’s Ratings has forecast Asia Pacific (APAC) data center capacity to grow at a compound annual average rate of almost 20 percent through 2028, involving an investment of about $564 billion, as rising computing demand fuels expansion.
The rating agency said in a note on Wednesday that the data center capacity in APAC is projected to increase to about 24,800 megawatt (MW), more than double the current capacity of over 10,500 MW.
It noted APAC will constitute about 30 percent of global capacity expansion over the next five years.
According to Moody’s, there is a strong pipeline of over 4,400 MW under construction in key APAC markets, about 75 percent of which is in China, Japan, Australia and India, and most of this should be completed in 2024-25.
“Data center capacity in APAC and globally will expand rapidly over the next five years, as the increasing adoption of artificial intelligence (AI) and cloud technologies, cryptocurrencies, and a rising preference for outsourcing data computing and storage for efficiency and scalability fuel exponential growth in the sector,” it said.
It also noted hyperscalers will dominate demand for new data center capacity and include large internet service providers, cloud and network service providers, and multimedia companies.
As more AI-related products and services are developed, it said even more computing capacity will be required.
According to Moody’s, capacity in emerging data center markets, including India, Indonesia, Malaysia, Thailand and Philippines, will record growth rates of 29 percent to 48 percent through 2025 given the smaller amount of existing capacity today, coupled with governments’ digital agendas and investor support.
In more established markets such as mainland China – APAC’s largest data center market with 3,956 MW current capacity – Japan, Australia, Singapore, Hong Kong SAR, China and Korea , data center capacity will also continue to grow, but at a slower pace of 4 percent to 20 percent given the larger base of existing capacity, geopolitical and data sovereignty concerns, and land availability.
These growth impediments in the historically dominant APAC data center markets support continued localized expansion in the region’s emerging data center markets.
It is noted that hyperscalers, including Microsoft Corporation, Amazon.com, Inc., Alphabet Inc., Oracle Corporation, Meta Platforms, Inc., Alibaba Group Holding Limited, Tencent Holdings Limited and other tech giants, own and operate many data centers in APAC and are also the primary tenants of the rapidly growing hyperscale and AI data centers built by developers.
It is also noted that large APAC data center providers include AirTrunk Pty Ltd, WinTriX DC Group, NEXTDC Limited, NTT Global Data Center Corporation (NTTGDC), STT GDC Pte Ltd (STTGDC) and Princeton Digital Group, collectively operate more than 40 percent of data center capacity in the region.
While China is the biggest data center market in APAC, Moody’s said tensions with the United States will likely drive additional capacity to other economies in the region.
“We expect data center demand to grow in China, supported by the strong local market as most capacity utilization is driven by domestic cloud services providers such as Alibaba, Tencent, and Huawei Technologies Co., Ltd,” it said.
It also noted concerns over data sovereignty have also led APAC governments to implement regulations around where data is stored, spurring providers to house data locally or within different facilities in certain countries.
Moody’s also believes Singapore with current capacity of 973 MW will remain the data center hub for Southeast Asia, despite its stringent setup requirements, with thresholds for renewable energy and an overall cap of 60 MW per year on total capacity for new applications.
This status derives support from the country’s open economy, political and power supply stability, and extensive regional undersea network infrastructure, according to the rating agency.
It also said Malaysia and Indonesia have been direct beneficiaries of spillover demand from their neighbor, prompted by Singapore’s recent three-year moratorium on data center capacity expansion and its land availability limitations.
It is noted that in Malaysia’s southern Johor region, there has been an increase in investment in data centers.
Cloud services provider Microsoft purchased land from Eco World in June 2024 which is slated to be used for new data center development.
GDS Holdings Ltd, a developer and operator of data centers, has invested around $3 billion to open two data centers in Johor’s tech park.
And other cloud services providers such as Google and Amazon have committed to invest $2 billion and $6 billion respectively in Malaysia for data center and cloud services by 2037.
However, for new entrants into the market, Moody’s said investment in data centers will introduce a fresh layer of exposure to carbon transition risks, because their massive power needs will be primarily served by nonrenewable sources initially.
Data centers’ water intensity and their exposure to cyber risks could also create obstacles to their development in some APAC economies, it said.
Meanwhile, it opined that investment in data centers will give telcos an opportunity to diversify their revenue streams, as income declines in the legacy mobile businesses; they can also cross-sell data center services to their enterprise customers.
It also noted real estate companies are investing in data centers to diversify assets and revenue sources.
According to Moody’s, data center growth will also catalyze a rise in demand for power, as well as greater network capacity, particularly because data centers may be located in clusters, requiring strengthening of the local energy network.
It also noted rapid demand growth will benefit power generators with existing spare capacity, but energy networks may need to upgrade their capacity to accommodate data centers’ large energy consumption.
Still, it said regulated networks should be able to include such spending in their regulatory asset bases, which will generate highly predictable revenue and preserve their credit strength.
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