Government regulations in Asia-Pacific could stifle MTDC growth
December 2 2019
by Dan Thompson, Emily Wentworth
When we examine a country's datacenter market, growth of the public cloud and government regulations are two trends that we consider to have the greatest effect on the market's trajectory. We've previously looked at data sovereignty laws in particular, which have had a positive influence on the growth of several APAC MTDC markets. Here we discuss other regulations that are impeding market development.
The 451 Take
Datacenter markets worldwide have benefited from various local laws, such as those that enable tax cuts on land, buildings and equipment, ease of construction or obtaining power, and data localization legislation obligating businesses to choose in-country providers – but government regulations can also have a negative effect. As we're now seeing in the APAC region, specifically China and Singapore, they can threaten the growth of a market. The growth of the datacenter industry has increased governments' awareness of concerns over datacenters that have long existed in the industry. They are responding to these grievances, namely datacenter energy consumption and efficiency, lack of jobs and the amount of space required to build a facility (which poses an issue for space-limited areas such as densely populated cities). Some regulations, like those pertaining to efficiency, arguably aren't detrimental in the long run; ultimately, they're making datacenters rethink how and where they build. What's happening in APAC now could serve as an example to industry participants of issues they may encounter.
As a region, APAC grew 2.4% Q/Q in terms of net operational square feet in Q3 2019. As a percentage of global growth, APAC accounted for 37%, followed by North America at 34%. Zooming out to yearly growth, this puts APAC at 12.7% Y/Y growth to date, representing 38% of the global growth (again followed by North America at 34%). On a country-by-country basis, China had the strongest growth at 2.9% Q/Q for Q3 2019, while Indonesia grew at 0.5%, Korea 0.9%, Singapore 0.4% and Australia also at 0.4%. Given that markets tend to grow sporadically, this shouldn't be a concern.
Datacenter space, whether owned or rented, won't be disappearing anytime soon as the quantity of data generated by connected devices and applications continues to balloon. What is of concern, however, is the season of bad press the datacenter industry seems to be stuck in, and perhaps more to the point, how governments are responding to it. Conversations on datacenter efficiency and how 'dirty' datacenters are, are of course nothing new. Discussions around PUE have been happening in the industry for over a decade, and while it's true that datacenters have been striving to become more efficient over time, the reality is that there is much datacenter capacity sitting around the world that is extremely inefficient, and there are plenty of providers hiding behind 'planned PUE' or 'designed PUE' of what the facility will hopefully
be once it reaches maximum capacity, which may or may not ever actually happen. Also on the list of datacenter grievances is the sheer amount of space that facilities occupy, which can be problematic in densely populated areas where land is limited, the low number of jobs that datacenters bring in and the buildings' unattractive exteriors. Conversations about the competency of the PUE standard and what can be done to help the datacenter become even more efficient aside, what is interesting is the fact that governments are now taking actions that are limiting or downright impeding market growth.
Today, this is playing out most visibly in China. A few years ago, in Beijing, city officials placed a ban on new datacenters inside the third ring road. At first this seemed innocent enough – the capital is trying to move a lot of industry outside the center of the city – but since then the datacenters have been forced further and further out, raising pricing on what capacity was available downtown and causing developers to seek out new locations for datacenter builds. Now the city has passed a PUE restriction that datacenters supporting the cloud industry must be below 1.4 or move even further out of town.
Now other cities are following suit. Recently, the Shanghai Economic and Trade Commission issued the Shanghai Internet Data Center Construction Guidelines (2019 Edition) to regulate the construction of datacenters in the city. Specifically, authorities have proposed that 'new IDCs in the area of Shanghai Central shall be strictly prohibited' and 'the scale of a single project should be [limited] to 3000 to 5000 racks, the average rack design power is not less than 6kW, and the total power of rack designs is not less than 18000kW,' as well as other standards. In Shenzhen at the beginning of this year, local authorities began to impose strict PUE requirements for new facilities due to environmental concerns, a move that may severely limit future growth potential for the city and has already put several planned projects on hold.
The rising cost of building in Shenzhen and an increased reluctance to approve new datacenters on the part of the local authorities in Guangzhou, also due to power availability and environmental concerns, is leading to more demand for new, relatively untested locations throughout the rest of Guangdong Province, where land and power are both much cheaper. Campus environments targeted at hyperscalers that still require a lot of capacity located close to Guangzhou and Shenzhen, not to mention nearby Hong Kong, could lead to the broader province's rapid ascendancy as a significant datacenter market in its own right, particularly as the government's Guangdong-Hong Kong-Macau Greater Bay Area project begins to take shape.
We're starting to see rumblings of this outside China as well. In Singapore, for example, this year the government has put an unofficial moratorium on new datacenter builds (similar to what we've also seen in Amsterdam). It's unofficial because the government has yet to make a public announcement; however, in the last 12 months it has not granted the sale of new land for datacenter development and blocked requests for change-of-use permits for brownfield builds. Earlier this fall, various branches of the government held a closed-door meeting with delegates from each of the datacenter providers in Singapore to discuss exactly why this is, and the reasoning seems to be around the sustainability of the industry and the amount of jobs is bringing to Singapore (or specifically, the lack thereof), as well as environmental concerns surrounding the datacenter industry. For Singapore, enough builds were already in the works that there won't be a supply gap this year (although there is at least one new provider wanting to enter the market, but has been unable to); however, if the freeze continues for another year, it could spell trouble for arguably one of the most important markets in southeast Asia. Worryingly, it could be another 18 months before another datacenter is approved, which means another new datacenter could be more than two years out. Likewise, other governments around southeast Asia tend to mimic regulations in Singapore, so an official stance against the datacenter industry could have a negative ripple effect in the region.