ESR Cayman Limited, the largest Asia-Pacific focused logistics real estate platform, today announced it has completed the acquisition of a building in Hong Kong, which it plans to convert into a data center with 40 megawatts of power capacity. Specifically, ESR Cayman’s new asset is located in the area of Kwai Chung, Hong Kong, a data center cluster where GDS Holdings also owns facilities.
Additionally, today’s announcement marks ESR Cayman’s entry into the Hong Kong market, across all real estate asset types.
ESR Cayman – Hong Kong Data Center and Beyond
Data Center in Hong Kong
ESR Cayman will convert the Kwai Chung building into a data center, through a comprehensive reconstruction, which will result in a gross asset value (GAV) of $675m upon completion. Notably, Hong Kong is a market characterized by having few opportunities for greenfield developments, given its limited developable land. Therefore, ESR Cayman’s brownfield approach is necessary, to gain scale, when entering the Hong Kong data center market.
Finally, the company intends to fund the redevelopment through capital partners, which will likely include its founding shareholder and private equity firm, Warburg Pincus.
Data Center Platform
ESR Cayman’s entry into Hong Kong closely follows its acquisition of a data center and developable land in Osaka, Japan. Indeed, through this project, the company will build a campus with 78 megawatts of power capacity and GAV of $2.15bn.
Overall, ESR Cayman’s Japan and Hong Kong projects, as well as other opportunities under exclusivity, gives the company access to land and power approvals to potentially develop 250+ megawatts across major markets in Asia-Pacific. Specifically, ESR is targeting the Asia-Pacific data center markets of Japan, Singapore, Hong Kong, India, and Australia.
Hong Kong – Data Center Market
Hong Kong is the fifth largest data center market in the Asia-Pacific region. The market benefits from low electricity costs, limited climate risks, strong network connectivity, and its proximity to Mainland China.
In particular, data centers support Hong Kong’s key industries, including financial services, insurance, trading, and logistics (including e-commerce), which account for ~50% of total data center utilization.
Overall, Hong Kong is experiencing significant demand from the largest hyperscale customers of the United States and China. From the U.S., these customers include Amazon Web Services, Microsoft Azure, Google Cloud, and Apple. While from China, these customers include Alibaba Cloud, Baidu, and Tencent.
ESR Cayman is expanding its presence into Hong Kong and, in turn, faces competition from several notable data center operators. Firstly, SUNeVision’s MEGA-i data center is touted as the most connected telecom and internet service provider hub in Hong Kong. Secondly, Equinix’s HK1 and HK2 facilities are also major interconnection points in Hong Kong. Finally, Global Switch is a key wholesale data center provider for customers seeking to deploy capacity at scale.
Beyond the aforementioned competition, Hong Kong has a number of established and emerging providers of data center capacity. Specifically, these companies include AirTrunk, China’s telecom operators (China Mobile, China Unicom, and China Telecom), Digital Realty, GDS Holdings, iTech Towers, NTT, OneAsia Group, PCCW, and Telin.