Data centres: The key infrastructure for digitisation

Data centres are the physical manifestation of the digital trends that are changing every aspect of our life. Whenever we make an online payment, watch a movie on our phone, or look for something on a search engine, we create data that needs to be stored somewhere, and the information often ends up in large facilities full of countless rows of servers, routers and storage systems.

Demand for data centres has been strong for years, but the rapid development of artificial intelligence further increased the need for storage, as training data for AI models are typically huge collections of information.

"AI is driving a digital, data revolution – resulting in the global build out of data centres around the world, valued at over $300 billion in 2024. It is now expected to grow at more than 20% per year to 2030,” said Sir Danny Alexander, Chief Executive, HSBC Infrastructure Finance (HIF) & Sustainability, HSBC.

Allocating capital to data centres is becoming popular among investors, especially those with experience in real estate or infrastructure projects. One of the attractions of investing in a data centre is that it allows investors to participate in the broad digitisation trend without having to make a choice over which particular technology company is going to succeed.

How to build a data centre

Developing a data centre is a complex process that requires several key components.

The first is land. Data centres need lots of space, with the largest facilities requiring as much as 500 to 800 acres¹. The land cannot be anywhere. It not only has to be in a location that makes sense for potential tenants, as it has to have to all the connectivity to the services necessary for the data centres operations. Most notably, it needs access to the power grid, as a data centre can require as much as a gigawatt of energy to operate.

The final part of the construction is the financing, which can be considerable. The largest data centres, known as “gigawatt campuses”, need around USD8 billion to develop in Asia, and this can go as high as USD13 billion in Japan, said Prashant Murthy, Chief Financial and Commercial Officer, AirTrunk – a developer of data centres, which is backed by Blackstone.

“To secure that volume of capital, the developer needs the customer already lined up,” he said. “The contracts are very long duration that in many ways look like infrastructure contracts.”

There are considerable execution risks in developing a data centre. The lease the tenant signs includes a commitment by the developer to deliver the facility on time, on spec, and on budget. Failure to do so means that the lease is breakable, allowing the tenant to walk away.

Aligning with sustainability goals

For some, the tremendous energy needs of a data centre are a key concern, as building numerous energy-intensive facilities all over the world appears to go against the goal to realise the energy transition. To put this issue in perspective, data centres in the Republic of Ireland accounted for 21% of the country’s overall usage of metered electricity².

The panel discussed how large technology companies and data centre developers are actually at the forefront of the energy transition. Not only do they have serious net zero commitments, they are also among the largest partners in power purchase agreements for renewable projects, as solar and wind power are often the most affordable energy sources for a data centre.

An AirTrunk project in Hong Kong highlights these trends. The company partnered with CLP Power on the largest site-specific renewable energy certificate procurement in Hong Kong to support its customer, Microsoft, achieve its goal to use 100% renewable energy by 2025. The renewable power will come from more than 200 megawatts of aggregated installed capacity from 17,000 sites across Hong Kong³. The company has also announced innovative renewable power purchase agreements that help drive the energy transition in Australia, Hong Kong and Malaysia.

In our view, sustainability is just good business,” said Mr. Murthy. “We see it as a really positive message for our employees, for the governments and the communities we operate in.

Market opportunities

Looking to the future, the growth of the data centre market will occur in places where there is the grid capacity to power the facilities. Furthermore, the areas with most promise will have enough connectivity and be an attractive destination to locate employees, with an eye to further expansion.

The US is the largest market, with around 60% of the world’s installed data centre capacity⁴. The country’s Midwest, where there is excess power generation, including from wind sources, will likely be a focus area for developers.

But the market is a global one, with facilities under development across a wide range of economies. In Asia, Mr. Murthy highlighted India’s potential, as well as more established markets like Australia and Japan. The Malaysian state of Johor was also mentioned, as its special economic zone next to Singapore is attracting significant investments.

“We are seeing opportunities in many places, and you could say that it is a rising tide market that will benefit all participants,” he said. “The important thing to focus on is where can you focus for long-term execution.”