While certain data center markets, like Northern Virginia, have seemingly endless available land and power to develop new 100+ megawatt greenfield facilities, there are other cities globally, often Tier-1 data center markets like Singapore, that are increasingly supply-constrained. These markets face challenges on new data center construction from regulatory (such as moratoriums), physical, and power-related forces.

Indeed, these forces are prompting concerns as to whether the explosive growth in demand for data centers globally will be hindered by a lack of available supply. Particularly, the concern is most acute when challenges arise in securing land and power in Tier-1 data center markets.

Supply-Constrained Data Center Markets

Below we highlight Singapore’s moratorium on new data center permitting as an ongoing case study. However, there are a number of global data center markets that are currently experiencing at least one supply-constraining force, be it regulatory, physical, or power-related.

Beyond Singapore, supply-constrained data center markets include Frankfurt, Santa Clara (Silicon Valley), Seoul (South Korea), and Amsterdam, amongst others.

Key Reasons for Supply-Constrained Data Center Markets – Beyond Singapore

Firstly, Frankfurt may soon implement restrictions relating to the growth in power usage from new data center developments. Secondly, Santa Clara offers physical constraints to new entrants given that it is hard to assemble land in the area. Thirdly, Seoul (South Korea) presents limitations on securing power, which is particularly important for emerging hyperscale workloads. Finally, Amsterdam’s moratorium on data center development has ended, however, restrictions on future power growth still exist.

Singapore Case Study – Moratorium

Singapore is a key data center hub in the Asia-Pacific region and an important location for hyperscale customers from both the United States and China. However, concerns regarding greenhouse gas emissions and power consumption levels led the city-state to impose a moratorium on new data center permitting. Moreover, this regulation compounded the fundamental challenge presented by Singapore’s physical presence, as an island, which makes securing sizeable quantities of land for hyperscale deployments difficult.

Overall, Singapore’s moratorium has limited growth in the supply of data center capacity in the near-term. However, in the medium- to long-term, the moratorium will push data center developers to incorporate more stringent requirements for green energy into their new builds.

Nevertheless, strong demand for data center capacity persists in Singapore. As a result, data center providers with existing capacity in the market, such as Keppel DC REIT, Equinix, and Digital Realty have stronger bargaining power with existing and new customers. Therefore, higher data center leasing rates on new signings and, as leases expire, renewal singings will continue.

At the same time, for prospective data center entrants into Singapore, like GDS Holdings, the barriers to entry are formidable.

Singapore Case Study – Key Data Center Providers

Below we highlight details from select data center operators in the supply-constrained Singapore market to provide granularity on the trends.

Digital Realty – Existing Operator

As of Q1 2021, Digital Realty has 37.3 megawatts of power capacity and 541k sqft in Singapore, which has an occupancy rate of 95.8%. Additionally, the company currently has 41.3 megawatts of power capacity and 345k sqft of space under development, which is 85.5% pre-leased. Specifically, Digital Realty’s key development project in Singapore is its Digital Loyang 2 (SIN12) facility.

During Q1 2021, the company pre-leased a further 13.5 megawatts in Singapore, demonstrating the strength of the market. Indeed, the company highlighted the signing of a leading Asia-Pacific-based diversified digital economy platform in Singapore as a key win. For this customer, Digital Realty provided colocation, connectivity, and a hyperscale data hall, highlighting a broad demand of product offerings.

Given this demand strength, Digital Realty notes that it has increased its leasing rates for the Digital Loyang 2 (SIN12) project on multiple occasions.

Finally, Digital Realty is in the process of securing land sites in Singapore for future data center builds. However, the company recognizes that it will not be possible to build-out these data centers until the moratorium is lifted.

GDS Holdings – Prospective Entrant

GDS Holdings, the largest carrier-neutral data center operator in China, has set its sights towards expansion in Southeast Asia. Moreover, Singapore is a key pillar of this expansion plan. However, Singapore’s moratorium on new projects represents a significant barrier to entry for the company, particularly as a new entrant.

GDS’ CEO William Huang commented on this situation on the company’s Q1 2021 conference call. Specifically, “as the Singapore Government is not approving new projects, we are looking for alternative ways of establishing a presence in the Singapore market”. Indeed, these alternative forms of entry include the acquisition of assets or operating companies in Singapore with existing capacity.

Another implication of the Singapore moratorium is that it increases the impetus for GDS to deploy capacity in neighboring countries. As a result, the company is also seeking entry into both Malaysia and Indonesia, where development expansion is not hindered.

Equinix – Existing Operator

Equinix’s top market by allocated capital expenditures, through the end of 2022, is Singapore at $268m. Additionally, Singapore is one of four markets where Equinix approved further data center expansion capacity in Q1 2021. Finally, Equinix is buying back its data center real estate in Singapore at a facility where it is the tenant.

Overall, these data points indicate that Equinix is experiencing tremendous demand in Singapore from its enterprise and cloud customers. At the same time, the company is accelerating its approved build-outs, where it has permitting in-place. In turn, this will help to mitigate consequences from the moratorium on its future development pipeline in the market.

Summary – Data Center Supply-Constraints to Increase

Overall, Singapore’s moratorium on new data center permitting is resulting in a supply-constrained data center market for both existing and prospective entrants. As environmental concerns continue to gain focus in the data center industry, additional markets may impose restrictions, akin to Singapore. In turn, this will challenge the status quo for securing land and power in Tier-1 data center markets globally.

Supply-constrained data center markets that necessitate close near-term monitoring include Frankfurt, Santa Clara (Silicon Valley), Seoul (South Korea), and Amsterdam.

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