27 October 2016
Capacity flexibility and service guarantee on round-the-clock maintenance are among the key draws of external data centers. Photo: HKEJ
Capacity flexibility and service guarantee on round-the-clock maintenance are among the key draws of external data centers. Photo: HKEJ

Why it’s good to be in the data center business

You don’t need to be a tech expert to tell that data center operation is a great business.

Just look around, and you see people everywhere fixated on their mobile phones and tablets, be it on MTR trains, in restaurants or even while walking on the street.

People now use their mobile devices for gaming and entertainment, social networking, shopping, booking cabs, ordering air tickets, trading stocks, paying bills, etc. The list of things we can do on the go just keeps expanding by the day.

According to Internet Stats Asia, 81 percent of Hong Kong people are internet users, the third highest in Asia after South Korea and Japan. 

The more frequently we use the internet, the more data we generate. And the data requires processing and storage facilities, which is where data centers come in.

Over the past decade, demand for data center space has been growing almost continuously. The expansion clip is expected to stay around 10 percent per annum, according to a report from property consultant Colliers.

Adoption of new technologies like cloud computing, and cost advantages in leasing external storage space, is also fueling the rising demand.

Out of data security concern, companies tend to prefer keeping their servers in house. But for heavy users like financial institutions and the telecommunications sector, stiff rental costs in business districts are prompting a change in strategy.

The institutions are now becoming more willing to outsource or use data centers, which are typically located in industrial buildings where rentals are much lower. (Grade A office rent is about seven times that of industrial rent in Kwai Chung or Tsuen Wan, for instance.)

The foremost criteria for deciding the location of data centers is whether an area is free from the risk of natural disasters, such as earthquakes or floods.

As Hong Kong is seen as one of safer places, it has come to be regarded a good place in Asia to set up such IT support facilities.

The city’s strong telecom infrastructure, free flow of information and robust power supply are also advantages, not to mention the large number of financial institutions and regional offices of multinational firms here, which almost guarantee strong demand.

China won’t be a direct competitor as the mainland’s data center market is highly regulated and dominated by state-owned enterprises. Data privacy and intellectual property are also issues that companies worry about.

Data center is as much a tech business as a property business, as lot of space is needed to house the servers, air conditioning systems and backup power generators. Access to property is therefore crucial.

Given this reason, it is no wonder that a number of active players in the city, including iAdvantage, NTT Communications and Towngas Telecom, all have links with big local developers.

There is currently about 5 million square feet of data center space in Hong Kong, mostly located in Kwai Chung and Tsuen Wan and Tseung Kwan O.

In the next two-and-a-half years, another 1.7 million square feet of stock will come to the market, according to Colliers.

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EJ Insight writer

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