The Singapore Data Center supply in 2016, rosy or gloom for next three years?

singaporeDCmapQ1-2016

Published on 23rd February 2016.

Is Singapore Data Center Market alright?

A February 2016 Straits Times article (reference 1) titled “Data Centres Shine Amid Property Gloom”, paints a picture that the data center industry will do better than the property sector and even the economy as a whole. I am concerned about the positive tone of the article given that the Singapore economy is predicted to be on recession to a flat year in 2016 (reference 2).

The support for the article is via two main premises:

  1. The article cited that there are rising demand from finance and tech companies.
  2. Government support to develop data center business in Singapore

 

Optimistic Demand

The first premise is that the demand will chew up the supply and things will be all well by early 2018.

Let us look at the second premise which is easier to deal with. The government support to develop data center business will only mean new player or existing player can more easily develop new data center facility, i.e. it deals with the supply side of the demand-supply equation. If the government can target the data center industry to give incentives or rebates to lower cost, it will make Singapore draw more data center clients vis-a-vis Hong Kong and the rest of South East Asia. But, it is not the norm for Singapore government to do so and so far it has mainly facilitated via designating and promoting the Data Centre Park.

I will be more than happy if the government attempt to influence the data center market by acting on the demand side directly or indirectly but it is not the case here in Singapore although our economic development agencies (EDB, IESingapore, IDA, etc) has and continue to promote and draw companies to Singapore to set up and grow their business.

Back to the first premise, it is quite counter intuitive given the examples in the article of tech companies Microsoft and Google. The fact that these tech giants are building new data centers only meant that they are building for themselves and not taking up the new supply that are coming up.

The example of OCBC also cited by the article did not help the case. OCBC bank is building its own data center facility and will relocate its existing data center to its own new facility? Therefore no OCBC take up of third party data center space. Increase in data center space demand? Nil. Coupled with the news that the financial service industry has seen layoffs since Q3 2015 until recently with the Barclay layoffs of 1,000 staff in Asia (reference 3), it is more likely that banks will review their data center demand and will more likely delay or reduce the pace of new space take up.

In one of my earlier post, I shared on surveys for data center demand, there is likely to be an over-counting of demand that needs to be moderated and I suggested divide by a factor of two.

The data center market is a connected market and not an isolated one. Singapore enjoys being the network hub for South East Asia (“ASEAN”), and it has half of the ASEAN data center market. Still, Singapore’s 5 million people is very small compared to the 600 million people in this region and investment can and has sometimes flowed directly to the other countries. For example, NTT has bought CyberCSF in Jakarta and had announced doubling the capacity of that data center.

At this point, I think it is clear to the reader that I think that the demand for new data center space needs to be carefully examined and considered for the data center industry stakeholders.

Let’s Count All The Supply

I see two main issues with the supply. They all come to a sum that is bigger than cited.

First, the supply is underestimated. i.e. same site demand that can be met within the same facility. Don’t get me wrong. New capacity of 47% coming up all in one year is huge for the small city state of Singapore! I think it is never heard off in a mature data center hub for a long time. It is highly likely there are expansion projects here and there within the existing data centers to take up some of the same-site demand. Clients are sticky (to a certain extent, I will examine and share my view via a future post) .
1. ST Elect (AMK)
2. 1-Net North
3. DRT Loyang
4. Singtel West
5. STTelemedia/Starhub Mediahub DC
6. STTelemedia Defu DC
7. Telin (DC Park)
8. Keppel T20
9. Global Switch

What is most interesting by this point of the examination into the supply side is that there are a number of third party data center facilities that were opened in 2015 or earlier which are brand new and have certain level of capacity.
1. Kingsland DC
2. Equinix SG3
3. Telstra/Pacnet DC
4. IO data center
5. NTT Serangoon data center

I agree with the article that it is true that these new capacity and existing capacity will mean it will be a tenant dominated negotiation for their renewal or expansion, and they may take the opportunity to shift to a newer or more resilient facility, what is left vacant will be inventory that is harder to lease out.

Some Suggestions to Maintain or Enlarge your Pie of the Market

I have some suggestions for the data center service provider to consider:

  1. Be prudent. Consider delaying investment or build or splitting the capital investments for the data center infrastructure into more phases to be just one step ahead of demand rather than one lumpy implementation.
  2. Review your client retention strategy.
  3. Pursue same-site client expansion.
  4. Improve the appeal of the vacant, especially older facility, by consolidating and enhancing the data center infrastructure and space on a bigger scale.
  5. Do not ignore potential small wins, they add up and also reduce the risk profile of relying on a few major clients (who has bigger negotiation power when supply is more than demand).
  6. Enhance service offerings, differentiates, talk to clients to draw out what will make them buy more services or will make them happy to stay (better network connectivity, cloud exchange, etc)
  7. Look at how migration works and put in effort to understand potential client’s concern about moving to your site (e.g. reference 4)

Last but not least, hang on to your valued customers, maintain a healthy communications with all levels of the client.

Reference:

  1. http://www.straitstimes.com/business/property/data-centres-shine-amid-property-gloom
  2. http://statestimesreview.com/2016/01/24/ntuc-expect-31-more-retrenchment-this-quarter-as-singapore-goes-into-recession/
  3. http://www.straitstimes.com/business/banking/jitters-over-looming-job-cuts-in-banking
  4. https://www.cgi.com/sites/default/files/white-papers/cgi-state-and-local-data-center-consolidation-white-paper.pdf
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The Singapore Data Center supply in 2016, rosy or gloom for next three years?

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