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Data Centers are instrumental to the successful development of our pillar industries, being integral to the efficient operation of financial, trading and logistics services in Hong Kong. With rapid development of global telecommunications and the growing emphasis on technological advancement for daily convenience, the demand for high-tier data center services from users like of “cloud computing”, “E-commerce” and “high-frequency trading” has never been greater in Hong Kong. According to the LegCo paper in December 2013, the government had originally reserved three sites in Tseung Kwan O for building Data Centers. After the first site was sold, the remaining two adjoining sites were consolidated into one. All the three sites designated for data center uses are eventually acquired by the same data center operator. The market interest on industrial land remains very keen; as witnessed by the record transaction price in the recent sale by the government of an industrial land in Shatin, which was purchased through public tender by the world’s largest wireless network operator, China Mobile. The fierce competition among developers and other tenderers for this lot has justified government alarm over the shortage of Data Centers and the urgency to raise the supply of land for them.
Amid the ongoing expansion of Data Center services in Hong Kong, it is clear that the government is unable to meet the ever-rising demand in provision of land. While many operators might not need an entire Data Center block, there exists substantial demand for small-scale cloud-calculation Data Centers. In 2012, the government introduced a policy to promote the conversion of industrial buildings to Data Center use. The waiver fee for changing parts of industrial building aged 15 years or above into Data Centre use first is exempted. The exemption is applicable to Data Centre of all tiers. Since the conversion of industrial buildings into Data Centers drastically reduces development costs, landlords of old industrial assets would have more incentive to revitalize and covert their buildings into higher value-added Data Centers. It is therefore reasonable to infer that this new government policy will greatly stimulate the supply of small-scale Data Centers, helping to meet the demand of multiple businesses.
Indisputably, if Hong Kong aims to become an international Data Center hub in APAC, the provisions of suitable land plots supported by well-developed infrastructure and facilities are of utmost importance. World tech behemoths Google and Facebook had considered setting up data centers in Hong Kong but eventually abandoned their plans in 2013 and 2018 respectively. Google's official explanation at that time was the paucity of land for future expansion. Eventually, Google picked a site in Taiwan's Changhua County as the new location of its Data Center - five times larger than the original one in Tseung Kwan O, Hong Kong. Currently, Google is running two Data Centers in Asia, one in Taiwan and the other in Singapore. These sites are chosen because of multifaceted factors like attractive land prices, comparatively low energy costs and the geographical proximity to its Asia-Pacific Headquarters. In addition, the utilization of renewable energy is one of the Google’s top priorities. In 2012, Google announced its renewable energy use target to be 100%, maximizing the use of clean energy sources for generating electricity. In stark contrast, Hong Kong produces just 3 % of total electricity demand from renewable energy sources which, as identified by the Hong Kong Electrical and Mechanical Services Department, would go against the “green philosophy” valued by Google. Limited space for further expansion, less-developed renewable energy supplies and a tepid response from the local government have seemingly restrained Hong Kong’s Data Center and high-tech industry development.
Apart from land resources, other ancillary facilities and human resources are also fundamental for Hong Kong to tackle in striving to be an Asia-Pacific Data Center hub. There are some prerequisites for a premise to be suitable for use as a Data Center, such as high ceiling height, flexible floor layout, a standardized fire system and sufficient spaces for the installation of supporting equipment (transformer rooms, backup generators, etc.). It is highly suggested that different government departments, inter alia the Lands Department and the Buildings Department, should provide and update proper guidelines in a timely manner to expedite the application procedures by the owners or their APs. The goal of becoming a successful Data Center hub in the Asia-Pacific region, cannot be achieved without the government’s support and favorable policy to ensure our competitiveness against other cities in the region.
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Listed Real Estate
The region’s real estate focused stocks outperformed in August, edging ahead of the wider market. This was led by the wider GPR/APREA Composite Listed Real Estate Index, which returned 5.8%, powered mainly by the Australian and Japanese markets. This more than offset the stall on China’s stocks, which remained largely flat after enjoying a strong rally up to July.
The property market has been a major driver in China’s economic recovery, with home sales and investment growing at a robust pace in recent months after coronavirus lockdowns were lifted. While home prices in the region’s largest economy, as tracked by the nation’s statistical body eked out a 0.6% rise in August from a month earlier, sentiment was stalled by tightening measures aimed at promoting a sustainable market.
Chinese authorities took a step to rein in debt growth, issuing new guidelines on bond issuance, as a strong housing market recovery prompted caution. June’s home prices which rose at their fastest pace in 10 months have already prompted fresh housing curbs.
REITs
Asia Pacific REITs recorded their fifth consecutive monthly gain with the GPR/APREA Composite REIT Index returned 5.6% in August, beating equities for just the second time this year. The gains were broad-based as nearly all markets across Asia Pacific turned in positive price performance. The region’s REIT stocks were led by the heavily weighted Australian market, which returned over 7.0%.
Industrial REITs, a clear outperformer so far this year, however, recorded a slight dip in August. REITs with industrial assets have mostly been resilient in the wake of the pandemic, as Retail and Hospitality REITs bore the brunt of the fallout from the pandemic fallout. Hotel, Retail and Office focused REITs, which had been the most vulnerable to the social distancing measures were some of the best performing sectors in August.
Rotational dynamics were clearly in play as investors bought ahead into a broadening economic recovery in the region, in search of higher yield. This was echoed in Japan, where Hospitality REITs led the rally, followed by Retail and Office.
In hopes of more to come, Japan’s first reciprocal green-lane arrangement for essential travel between Singapore shored up sentiment. Retail-focused REITs in Australia also outperformed as sentiment got a boost from the expected rebound in consumption. The latest Retail Trade figures released by the Australian Bureau of Statistics had showed retail turnover climbing 3.2% in July.
The worst may also be over for Office REITs as restrictions ease across the region. Vacancy, while moving up, has not spiked as occupiers in the region have been conservative on space requirements, especially in high-cost cities. The adoption of telework is also expected to be lower. The office will remain the region’s default workplace as culturally, it is more accepted; connectivity is an additional concern in the emerging economies.
The securitization of real estate in the region continues to gain ground. The Indian and Philippine stock markets debuted new REITs with the latter welcoming its first in the country. This month, India’s latest listing, Mindspace Business Park REIT, which debuted strongly, was included into GPR/APREA’s real estate indices. Meanwhile, Singapore’s status as a listing venue for cross border REITs received another boost as South Korea's AIP Asset Management and Japan’s Tokyu Land announced plans for a REIT listing in Singapore as soon as this year. The offering, backed by Australian commercial properties, could raise about S$400 million.
While some bumps are expected, gains registered by Asia Pacific REITs are expected to remain sustained, as policy support and monetary conditions remain conducive. Central banks in the region have continued to reiterate a lower-for-longer outlook. For the rest of the year, the region’s REIT space in the region is likely to be shaped by ongoing M&A activity as well as the creation of Chinese REITs. A continued economic recovery as well as an earlier-than-expected vaccine will remain strong sentiment drivers.
Download the Report Read MoreAs record-breaking investment flows into real estate, fund managers face increasing complexity and growing investor demands for real time reporting. We talk to Yardi’s Bernie Devine about the trends.
Download the Report Read MoreAs governments around the world start to ease restrictions on lockdowns, attention inevitably turns to the concept of “returning to work.” However, this viewpoint incorrectly frames the current state of play. Many office-based workers have continued to work through the pandemic and so the focus should actually be on who should go “back to the office?” Of course, the first focus has to be on employee wellbeing and vulnerable employees need to remain safe. But after that, the situation becomes more blurred,
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