AI is expected to contribute significant growth to data centers in the region, according to senior executives at CapitaLand Investment, Michelle Lee and Sanjeev Dasgupta. Read excerpts of the interview below or download the full story for more insights.
Fast-paced digitalization in the world’s most populous region is fueling de-mand for data center assets. Some of the world’s largest data center markets are in Asia-Pacific,
and the growth outlook remains promising, with the region’s data center co-location market projected to double in size to $52 bil-lion by 2026.
Michelle Lee (left), managing director, private funds (data center), and San-jeev Dasgupta (right), CEO for India, at Sin-gapore-based global real asset manager CapitaLand Investment, consider the dynamics shaping Asia-Pacific’s data center industry – and why managers need to put power availability, fiber connectivity and sustainability at the heart of their data center strategy.
Q What is the outlook for AI-driven data centers?
Michelle Lee (ML): We believe AI will contribute significant growth in the region’s data center markets, and industry players will have to prepare for this in several ways.
To accommodate AI-driven data centers, we need to consider the avail-ability of power because AI workloads are generally more energy intensive. From 10-30MW in the past, we are beginning to see requests for capacities of up to 100MW and beyond. Such high-density workloads ne-cessitate more advanced cooling tech-nologies. While air cooling is far from being obsolete, the industry is increas-ingly looking at liquid cooling, direct-to-chip cooling and immersion cooling technologies.
We have a vertically integrated team of data center specialists who track such requirements and technol-ogies closely, and ensure we meet both present and future market demands.
Q What makes India specifically an attractive market and what types of facility are most in demand?
San-jeev Dasgupta (SD): From its nation-al ID system to its national payment platform, India is a country that has gone remarkably digital in the last dec-ade. A lot of private sector technology companies are able to leverage that and build very scalable businesses. India also has a homegrown enterprise seg-ment, which is growing rapidly.
At the same time, hyperscalers are significantly expanding in In-dia to service a market that has the second-highest per capita data usage as well as the lowest cost of data in the world. Another factor unique to India is the potential to power data centers with
renewable energy, since the country has large solar and wind energy capacity.
Between 2020 and 2023, over-all data center demand in India grew above 25 percent per annum, and the forward outlook projection is upwards of 20 percent. This demand is from a combination of different customer seg-ments and data center products.
Q How are global institutional investors approaching data center investments in Asia-Pacific?
ML: Investors recognize the sector’s potential and strong growth tailwinds, but many of them remain underallo-cated to this sector. In a recent survey by CBRE, 97 percent of institutional investors said they planned to increase their capital allocation to data centers. In this digital age, we see investing in data centers, a critical digital infra-structure, as a way to future-proof one’s portfolio.
SD: Indeed, institutional demand for data centers, especially from large sov-ereigns, pension funds and private eq-uity fund managers, is very high. How-ever, data centers are a complex asset class to execute on and deliver.
As result, there is a limited number of stabilized data center assets available to buy. A lot of the assets in the Indian market are old generation data centers that are not of great interest to inves-tors currently. So, while there is no dearth of interest, the challenge is find-ing good projects worth investing in.
Q What are the nuances of investing in Asia-Pacific data centers that a global investor needs to keep in mind?
ML: Asia-Pacific is a fragmented region. Each market has its own unique legal framework, regulations, language and culture, which add to the complexity. For example, the approach to power supply applications and obtaining permits varies across markets. Therefore, it is important to work with a partner that has a very strong foothold in key Asian markets.
More than 90 percent of our AUM is in Asia, and we have been operating in markets such as Japan and Korea for more than 20 years across multiple asset classes. Our competitive advantage lies in having boots on the ground and leveraging our local
networks to help us navigate these nuances in the various markets.
SD: There are two parts to the data center business in India: first is site acquisition, design, development and the execution of the property itself and the data halls inside; the second is the whole process of customer acquisition and data center operations.
Most international players have strong capabilities in the second part, but a lot of them underestimate the challenges that come with the first part around site acquisition and development. They often encounter project delays, which create issues in providing the data center capacity to the end customer within the proposed timelines.
Given our 30-year history in real estate development in India, it is a big advantage for us to move quickly to create projects in prime data center corridors and get an early mover advantage.
Q Some industry observers believe data centers could harm the environment due to the huge power consumption. Do you agree?
ML: While there is a lot of discussion about how data centers, and AI particu-larly, consume power and create carbon footprints, it is also crucial for us to consider the carbon handprints – pos-itive impact to environment. Carbon handprints enabled by AI and cloud technology are today not talked about as much as the carbon footprints.
Research has shown that, say, a one-way flight from Frankfurt to London has a carbon footprint of 167kg of car-bon dioxide. If you replace that with a Zoom call, about one gram of carbon dioxide is released into the atmosphere. That is a significant reduction in car-bon emissions.
In fact, a survey by Capgemini shows that companies leveraging AI for climate action achieved global greenhouse gas reductions of between 11.3 percent and 14.3 percent. In our data centers, incorporating AI-enabled equipment has also helped us improve energy efficiency. So, these initiatives do have a positive impact on the en-vironment, but they are not that well quantified and understood today.
Our data center operations are aligned with our 2030 Sustainability Master Plan. Our data center sustaina-bility strategy has three thrusts – Green Design, Green Operations
and Green Energy. We are committed to incor-porating sustainability considerations in our whole value chain. For example, our new data centers will be designed and certified to meet green building benchmarks like LEED. In Europe, our self-operated data centers are 100 percent powered by renewable energy.
As an industry, we should have a two-pronged approach to sustainabil-ity for data centers: reducing carbon footprint, which we are all doing with our sustainability initiatives, and at the same time optimizing the carbon handprints from digitalization and the AI revolution.
