There was a time not long ago that government, banks, hospitals, schools, universities, utilities providers and dozens, perhaps hundreds, of other service providers relied on paper records for past and current information on their customers and clients. With the exception of perhaps government, data is now largely electronic and stored in clouds and on servers scattered across the globe. All that space taken up by storage boxes and entire floors dedicated to them are gone. But that doesn’t mean the need for data storage has vanished. It’s just shifted, and now it’s exerting a unique set of demands on real estate markets.

Information Property
As tiny as those bits and bytes are, we seem to be surrounded my more raw information than ever before, and the volume of it is growing every day. Data now transcends simply bank account information and educational transcripts. Data also comprises retail information and media — two of the fastest growing and data rich sectors in the world. In its simplest form, a data centre is a central repository of servers designed to store and disseminate information. Netflix is a welcome addition to Hong Kong’s television landscape, but those series and films need to be stored somewhere.

At the end 2015, Colliers International released the first of a series of white papers on the place and role of data centres in Hong Kong. In Asia, the key demand drivers for data storage is rooted in, not surprisingly, e-commerce, digital entertainment and social networking. Hong Kong’s 81 percent Internet penetration rate is third highest in the region, behind South Korea and Japan. By comparison, China and India reach only 47 and 20 percent of their populations, and therefore have the most growth potential. Nonetheless, demand for data centre space is expected to grow nearly 10 percent per year in the SAR, and the chief hurdle to that growth is limited supply.

Currently, Hong Kong boasts approximately five million square feet of data centre storage scattered across Tsuen Wan, Kwai Chung, Tai Po, Chai Wan and Wong Chuk Hang among others. As Hong Kong moves toward more and more cloud computing — in addition to existing industries that rely on data storage — centres will gain traction for their cost effectiveness. However, “Data centre requirements are not easy to meet. When we talk about competitiveness, Hong Kong can only meet the requirements of the big occupiers right now,” explains Wayal Chiu, senior director of industrial services at Colliers. “If it’s an operator that wants less than 50,000 square feet it’s quite difficult. There are no strata title industrial buildings that will provide 20,000 square feet, so you outsource. It’s a good opportunity for co-location providers.” The world’s largest data centre, Lakeside Technology Center in Chicago, is a multi-tenant facility.

The Future of Data
And co-location appears to be the major industry trend for the immediate future. The rising cost of office space, even in a soft market, makes in-house data storage in Central, Admiralty and TST fiscally irresponsible. Co-location data storage is both cost-effective and flexible. “From the perspective of occupiers, co-location services offer the benefits of more flexible and more reliable infrastructure but a reduced information/technology cost. Scalability is also a plus for occupiers opting for co-location. The key reason is that co-location service providers can offer their data centre occupiers a certain amount of reserve capacity for expansionary needs,” said Colliers’ report. On top of that, dedicated centres can guarantee minimum downtime as well as 24-hour maintenance and monitoring. Hong Kong’s place as a financial centre have made it a hub for data storage from outside the city, as concerns about data security, information flow, telecommunications infrastructure and a stable power grid have made Hong Kong (along with Singapore and Taiwan) a go-to storage destination in Asia. A strong data storage sector keeps Hong Kong competitive regionally, particularly for small and medium-sized businesses that will rely on co-location centres.

“In terms of stock size, five million square feet compared to other industrial sectors is not that much. I think the demand is there but in Hong Kong it’s just not available in Central,” says Colliers’ Executive Director of Research & Advisory Asia, Simon Lo. “Kwai Chung is still very popular for data centres. Tseung Kwan O is another hub because the government initiated data centres in the industrial sites. Looking ahead in the next five years, the potential for a bigger market share is there.”

So the question becomes one of where these crucial centres are going to go. As Lo pointed out, Kwai Chung and Tseung Kwan O (with its dual one-hectare sites) accommodate the lion’s share of data facilities. Conversions are a faster option, usually taking up to 18 months to complete though they tend to have lower building efficiency standards. Strata-titled new-builds are the slower, though preferred choice. In the short term, Kwai Chung and Tseung Kwan O will add nearly 1.7 million square feet in five buildings, while the government scheme to build dedicated new sites in Tseung Kwan O (over 500,000 square feet) and Hung Shui Kiu (4.8 million square feet near Tin Shui Wai) are in various states of development; the is former scheduled to go up for sale later this year and the latter is in the planning stage. Whether the blocks ruin the views from Yuccie Square or LOHAS Park remains to be seen.