Industrial hubs provide investors with near-term conversion opportunities as Hong Kong experiences growth in data centre demand

HONG KONG, 14 April 2020 – Growth in agile working, demand for cloud services and the establishment of mainland and multinational companies in Hong Kong creates near-term data centre investment opportunities the real estate sector, according to the latest report released by Colliers International (NASDAQ: CIGI; TSX: CIGI), a global leader in commercial real estate services. Despite more than 1.8 million square feet of new data centre space being supplied in the next three years, the supply-demand gap still creates both short and long-term investment opportunities.

Hong Kong’s data centre footprint is concentrated in the New Territories with over 50% of the assets (8 million square feet) clustered in a single area, Tseung Kwan O. Commenting on future development trend, Rosanna Tang, Head of Research for Hong Kong and Southern China at Colliers said: “Data centres are emerging as one of the most appealing asset types in the real estate market, yet the lack of available sites remains a challenge for investors with an estimated future supply to grow at an averaging a rate of 7% YOY over a three-year period between 2020 and 2022.”

To meet the demands of the Hong Kong market, investors and operators should look at entering the sector through wholesale conversion or redevelopment strategies. Russell Lam, Director of Capital Markets at Colliers said: “Key players such as PCCW solutions, Equinix and Grand Ming Group are very active in the market, but we believe areas like Kwai Tsing offer potential for data centre conversions given its vast levels of industrial stock. The timing of the current downcycle coupled with the Revitalization Scheme 2.0 could create the right environment for investors to deploy capital.”

Lam further explained: “Investors looking for long-term opportunities should consider areas in strategic locations such as Tuen Mun, Lok Ma Chau Loop and Kwu Tung, which could be better-positioned to help Hong Kong meet the demand in the market especially considering they offer geographic diversification.”

In the past 10 years, the government has sold only two data centre sites with no new supply in upcoming financial year. Commenting on the financial element of a project, Hannah Jeong, Head of Valuation and Advisory Services at Colliers Hong Kong said: “The original structures being used for potential conversions were not designed for modern use. Therefore, building a data centre on industrial land requires lease modification for which premium assessments can be as high as HKD3,000 per square foot on maximum permissible GFA. Assuming typical industrial land values range from HKD$4,000 to $6,000 per square foot, this raises up-front costs significantly and puts pressure on potential rewards for the development.”

Hong Kong’s position as an international financial centre, a regional hub and a global gateway into the Greater Bay Area are critical factors to why the city needs to strengthen its data centre solutions. Rosanna Tang added: “To attract and retain multinational and cross-border organizations, Hong Kong needs to build on its successful attributes of reliable power, low electricity costs, network connectivity and data protection. The Government’s plans to launch its 5G network infrastructure on the back of the ongoing smart city initiative, adds a long-term incentive for investors as the city builds on its competitiveness.”

To learn more about of the Hong Kong data centre market, download the full report: The Future Landscape of the Hong Kong data centre market from Colliers International here.


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