Why are businesses relocating data centres to Southeast Asia?

Data centres are sprouting around Singapore and its neighbours but what are the factors that make the region so attractive to providers?

Data centres
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Data centres are an essential component of business operations. They are centralised warehouses (physical or virtual) used for the remote storage and processing of data and information.

Most of our daily activities are regulated in one form or another by data centres: from energy bills to health records, all information managed by organisations is most likely stored in data centres.

Disruption in one of these warehouses can cause irreparable damage to your company and its reputation if there’s no efficient backup strategy in place.

Just in June Visa saw 5.2 million of its transactions fail because of a switch failure in one of its data centres.

With the increase in usage of cloud-based services, the Internet of Things (IoT) and big data analytics, the construction of data centres has rocketed in recent years across the globe.

Data centres in Southeast Asia

The multi-billion dollar Southeast Asia data centre market is poised for a deep growth and is anticipated that it will more than double its value in the next four years.

According to Technavio’s forecast, the data centre market in the region is expected to grow steadily at a compound annual growth rate (CAGR) of 13.88% during the period 2017-2021.

Not only that, the wider Asian continent is preparing to take over Europe as the largest data centre market worldwide by 2021.

The key segments that make Southeast Asia such an attractive market for data centre relocation today are IT infrastructure, server market and uninterruptible power supplies (UPSs).

In 2016, Southeast Asia’s IT infrastructure market was valued at US$6.28 billion and the UPS segment is expected to reach a market value of US$490 million by 2021.

On top of these considerations, the increase in demand for cloud-based services is a key factor driving the data centre market growth.

The Asian data centre provider ranking leaderboard is headed by Equinix, SUNeVision (iAdvantage), NTT Communications and Global Switch.

Whereas Singapore is the undisputed data centre hotspot in the region, Malaysia, Thailand and Indonesia also hold important positions in the top destinations list.

The case of Singapore

Within the Southeast Asian data centre market, Singapore has become the region’s hotspot and unrivalled champion.

With providers such as Amazon Web Services (AWS) and Google recently announcing the expansion of their data centre infrastructures in the country, Singapore has turned into one of the most mature data centres markets across the globe.

But why a country with a total land area of just 719.9 sq km has become a prime target for top data centre operators such as Equinix or AWS?

There’s no doubt that the city-state’s low tax environment has made it an attractive destination for large corporations.

Ranked among the top 10 worldwide business destinations, Singapore’s zero GST tax rate for international services and exports has attracted a substantial amount of foreign investors.

A DataSource also notes that in Singapore’s favour is its “strong network infrastructure, diverse connectivity to major APAC markets, its pro-business environment and political stability”.

As of Q4 2017, Singapore’s colocation data centre market comprised: 33 data centre providers; 42 unique operational data centres; 2.6 million sq ft of data centre space; ~76,000 racks/cabinets; and US$934 million of collocation services revenue as of 2017.

Singapore has a current total supply of 370 MW of IT power supply among co-location operators. Around 59 MW of IT power is readily available for data centre use, and 103 MW can be converted into IT power within three to six months.

John Corcoran, CEO of Global Switch, said last year that his company is investing heavily in its Asia-Pacific footprint as demand increases all over the region.

“If I look at our current portfolio, roughly two-thirds of our revenue and profit is generated from Europe and the UK, and then one third from Asia Pacific,” Corcoran said.

“[…] We are already in the top five Tier 1 markets of Europe, including London, Paris, Amsterdam, Frankfurt and Madrid. But we also wanted to be in the five Tier 1 markets of Asia Pacific, and at the moment these markets are Sydney, Singapore, Shanghai, Hong Kong and Tokyo.”