August 13, 2023, /South China Morning Post/ - Hong Kong has the potential to become a global data centre hub, but uncertainties such as geopolitical concerns and fears over cross-border data transfer are holding back growth, according to industry observers.
Western companies are increasingly hesitating to set up or expand their data centre footprint in Hong Kong because of heightened geopolitical concerns, CBRE said in a recent report.
“There are some geopolitical concerns on whether [Hong Kong] can balance [itself] as an international market to house different sides of data,” said Samuel Lai, an executive director at CBRE Hong Kong, noting that these concerns have slowed down a major take-up in data centres from companies.
While this is not seen as a growing trend, recent deals indicate there is some balance between Chinese and Western companies in the market, he added.
GDS, a Shanghai-based data centre operator, last month leased a 300,000 sq ft cold storage building in Kwai Chung to convert it into a data centre. Another deal last month saw Australian data centre operator AirTrunk lease the 150,000 sq ft San Miguel Industrial Building in Sha Tin.
Lai said these transactions reflect confidence among international players, adding that a multinational corporation was likely to use the coming AirTrunk data centre.
A memorandum was signed in June between Hong Kong and China’s central government to make cross-border data transfers easier within the Greater Bay Area, which could give the city a special role in handling mainland Chinese data.
The Cyberspace Administration of China, the data watchdog, and Hong Kong’s Innovation, Technology and Industry Bureau agreed to draft rules for the safe flow of data within the Greater Bay Area, which includes Macau and nine cities in Guangdong province, under a national data security management framework.
Although no further details on the proposed rules have been released, there is a “fear factor” among international and local data centre operators in Hong Kong regarding data access by Chinese authorities, said Timmy Fung, senior director for Greater China at JLL.
The proposed data deal comes after China introduced the Data Security Law and the Personal Information Protection Law in 2021, imposing tough penalties on unauthorised collection, processing, storage and use of data generated in the country.
It remains to be seen whether the new rules are drafted in a way that further facilitates or encourages the flow of data collected or stored in Hong Kong into the mainland Chinese areas of the Greater Bay Area, according to Dominic Edmondson, special counsel at Baker McKenzie Hong Kong.
In the long-term, enhanced integration with the Greater Bay Area has the potential to cement Hong Kong’s status as a global data hub, industry observers said.
“It can serve as a staging ground for operators planning to enter the mainland Chinese market, or as an outbound hub for Chinese operators and enterprises to expand globally,” said Cathie Chung, senior director for research at JLL Hong Kong.
Data centres in Hong Kong currently occupy some 10.5 million sq ft of space, which is expected to increase by 34 per cent to about 14 million sq ft by 2025, according to Cushman & Wakefield’s estimates.
“With over 3 million sq ft of new data centre space expected to be completed in the next three years, it is expected to attract related technology companies and operators from both mainland and overseas to expand in Hong Kong,” said John Siu, a managing director at Cushman.
While some operators may be enticed by Hong Kong’s data centre market as a result of the recent data-sharing memorandum, uncertainties over the proposed rules may lead others to seek new markets with no legal restrictions.
Singapore, another major data centre hub in Asia-Pacific and Hong Kong’s closest competitor, can be such an alternative.
However, inventory in Singapore remains constrained, with few developments in progress after a government-imposed moratorium, according to CBRE. The world’s most power-constrained data centre market currently has less than 4 megawatts of available capacity and a record-low vacancy rate of under 2 per cent.
“Singapore has no excess capacity available at the moment to absorb demand from Hong Kong,” says Glen Duncan, a data centre research director for Asia-Pacific at JLL.
This means there could be a spillover effect on emerging markets in the region, including Johor Bahru, Malaysia and Batam, Indonesia, where new construction is under way, he said.
