[SINGAPORE] Land scarcity, high land prices and sustainability requirements in Singapore are keeping data centre investors and asset managers at bay, a poll by the National University of Singapore (NUS) suggests.
Only one-third of respondents surveyed rated Singapore’s data centre market positively in terms of competitiveness and investment appeal, relative to other data centres in the region.
In terms of investment yield, data centres outperform other commercial and industrial assets, noted Sing Tien Foo, the provost chair professor in real estate at the National University of Singapore Business School.
Growing cloud adoption has powered the demand for data centres, which are emerging as an attractive real estate investment class, but data centre supply in Singapore is limited, he said.
Some 92 per cent of property players surveyed agreed that Singapore faces physical and resource constraints in expanding and scaling up data centre capacity.
About two-thirds of the respondents cited power supply and cooling energy constraints as a key challenge; 62.5 per cent viewed environmental sustainability pressures as daunting.
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Prof Sing said: “Burgeoning demand for data storage, cloud services and AI and digital transformation are key factors that place Singapore as one of the choice data centre destinations. Additionally, Singapore’s strategic location and its sustainability-focused regulatory framework are also favourable for market growth.
“Singapore will need to balance between the opportunity cost of not being able to capture this forthcoming demand for data centres and the tradeoffs of the physical constraints,” he added.
Singapore imposed a moratorium on building data centres in 2019 to manage the growth of data centres, amid a review of how to balance sustainability concerns with business needs. The moratorium was lifted in 2022.
“However, the government requires more stringent rules on sustainability and resilience on new data centre developments,” Prof Sing noted.
In June 2023, the government introduced a new sustainability standard for data centres. Operating temperatures could be gradually increased to 26 deg C or above, which would allow data centres optimise their energy efficiency.
A quarter of those polled said that, given the growing appeal of this asset class among real estate investors, a 2 per cent premium in investment yield could be expected, compared to commercial real estate asset investments. One fifth of the poll respondents (21 per cent) expected a 3 or 4 per cent premium.
However, 17 per cent of the more pessimistic respondents expected a 1 per cent discount, or no difference in investment yields.
Some 79 per cent of respondents identified lower capital outlay and 42 per cent cited stability in cash flows as reasons for data centres’ favourable performance as investments, relative to other commercial and industrial real estate assets.
More than nine in 10 respondents (92 per cent) of the respondents agreed that increasing digitalisation and adoption of cloud data storage by firms were the main growth drivers for this asset class.
Other key drivers include Singapore’s strategic location and connectivity, as cited by 67 per cent of the respondents, and strong demand from third-party and hyperscale cloud-service providers, cited by 58 per cent of them.
State investments in digital and cybersecurity infrastructure, as well as the Smart Nation Vision, were also highlighted by the respondents.
