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Data centre appeal

Data centre appeal

29 Jun 2024

More developers entering the segment

WITH demand for data centres “hotting up” as of late, it’s not surprising to see more property developers getting in on the action.

Earlier this month, Prime Minister Datuk Seri Anwar Ibrahim announced that Malaysia had approved Rm114.7bil worth of investments in data centres and cloud services between 2021 and 2023.

The past few weeks have seen several real estate players announcing land deals for data centre-related ventures.

Just this month, Mah Sing Group Bhd announced its maiden entry into the data centre sector, launching Mah Sing DC Hub@southville City with Bridge Data Centres Malaysia V Sdn Bhd.

The tie-up will jointly develop data centre facilities and infrastructure on a 17.55acre freehold land within the Southville City township in Bangi, Selangor.

Earlier this month as well, Eco World Development Group Bhd (Ecoworld Malaysia) struck a deal to dispose of 123.14 acres of industrial land in Eco Business Park VI in Kulai, Iskandar Malaysia, to Microsoft Payments (M) Sdn Bhd for Rm402.3mil cash, to expand its data centre hub down south.

This month also saw UEM Sunrise Bhd selling two land parcels in Iskandar Puteri, Johor to an undisclosed global data centre player for Rm144.9mil.

Last month, Sime Darby Property Bhd announced its partnership with Pearl Computing Malaysia Sdn Bhd to develop a hyperscale data centre at Elmina Business Park, Selangor.

The 20-year lease, valued at up to Rm2bil, will see the parties developing the data centre on 49 acres within the 1,500 acres Elmina Business Park.

Zerin Properties chief executive officer Previn Singhe acknowledges that the interest in data centres is growing, adding that it was no surprise that numerous developers are “joining in.”

“Data centres are crucial for storing and managing the increasing amount of digital information.

“Yes, I do see more developers getting involved in this trend. It’s a smart move because data centres are becoming an essential part of our digital world.

“As technology continues to grow, the demand for data centres will also rise, offering great opportunities for developers,” he tells Starbizweek.

With the growing popularity in demand for data centres, KGV International Property Consultants executive director Samuel Tan says it’s no surprise that developers are keen to jump on the bandwagon to ride on the “data centre hype.”

“This is especially so for land owners or developers that have huge landbank or newly developed industrial parks.”

Meanwhile, KGV International Property Consultants research head Tan Wee Tiam says the data centre-related land deals are a good way to monetise land and kickstart a development.

“There are practically new transactions every week involving investors looking towards Malaysia, particularly Johor Baru, as a regional data centre hub.”

Strong appeal

For property developers, Previn says the data centre segment offers revenue diversification and steady income streams.

“Data centres offer stable, long-term revenue through leasing agreements with tech companies and other enterprises.”

The high demand for data centres will help ensure steady income streams, says Previn.

“With the surge in cloud computing, ecommerce and big data, there’s a growing and consistent demand for data centre space.”

As technology advances, Previn says data becomes increasingly central to operations across various industries.

“Developers investing in data centres position themselves at the forefront of this technological shift.”

Going into data centre development is also part of a growing sustainability trend, Previn adds.

“Many companies are focusing on sustainable practices and green data centres are in demand. This aligns well with future-focused investment strategies.”

Noteworthy also is that data centre-related deals will offer collaboration opportunities to developers, Previn says.

“Developers can partner with tech giants, telecommunications companies and cloud service providers, fostering strong business relationships and new growth opportunities.

“Moreover, governments often provide incentives for tech infrastructure development, enhancing business prospects.”

Meanwhile, RHB Investment Bank analyst Loong Kok Wen says developers with sizable landbank will mostly benefit from the rising data centre wave.

“We think players with a vast landbank will likely be able to capture opportunities, especially those with land that comes equipped with ready infrastructure and located not far from major cities,” she says in a recent research note.

Loong believes that UEM Sunrise, Sime Darby Property, S P Setia, Mah Sing, Ecoworld Malaysia and AME Elite Consortium Bhd are potential developers that may benefit from demand for data centres, given the location, amenities and infrastructure of their existing landbank.

“As data centres have to be distant from residential and commercial property areas due to strict security reasons, developers may choose to have them set up in their existing industrial parks.”

Loong says recent land transactions by data centre players have certainly set a new pricing benchmark for industrial land nearby.

“We gather that more are entering the fray. More developers may consider co-investing with data centre users or building and leasing shell and core data centre facilities for recurring income.

“Developers may also form a joint venture with a data centre operator for co-location facilities.”

Loong says a stable of data centre facilities would provide monetisation opportunities in the future, given the long-term nature of data centre operations.

Going forward, Previn says the future of the data centre market in Malaysia looks bright.

“Our strategic location in South-east Asia, combined with our advanced infrastructure and growing digital economy, makes Malaysia an attractive place for data centre investments.

“We can expect to see continued growth, with more local and international companies setting up their data centres here.

“This will also create more job opportunities and boost our economy. So, overall, the outlook is very positive.”

Source: The Star