Wholesalers in Singapore Feel the Squeeze as Cloud Giants Build Own Data Centers

Singapore has long been the place to be if you want to provide any kind of digital services to customers in Asia – especially Southeast Asia. Thanks to its location, a high number of submarine cable landings, and a stable political climate, the tiny city state has played an outsize role in the communications and technology markets of the entire Asia Pacific region.

As a result, it has had a robust presence of data center providers, selling server space, power, cooling, and access to networks. Over the last couple of years, digital services have increasingly taken the form of cloud services, delivered by a handful of cloud giants, and the Singapore data center industry is now feeling the impact of this shift.

Since hyper-scale cloud companies, such as Amazon Web Services and Alibaba Cloud, prefer wholesale data center leases to retail colocation, the balance in Singapore has shifted toward wholesale. For the first time this year, wholesale leases are responsible for more revenue than retail, Jabez Tan, research director at Structure Research told Data Center Knowledge in an interview.

If the split was 49 percent wholesale and 51 percent retail in 2016, the reverse is true this year, he said, citing data from a recent report on the Singapore data center market he authored. While Structure did not put out a Singapore report in 2015, “two years ago, I can pretty accurately say, it was still more retail than wholesale,” Tan said.

Building Their Own

The trend toward wholesale was apparent last year, in Singapore and in other major Asian markets, but there’s another dynamic in Singapore that makes it stand out. Over the last two years, cloud providers have favored building their own mega-scale data centers in Singapore rather than leasing from wholesale providers. They’ve mostly taken the latter approach everywhere else in the Asia Pacific. “Singapore’s the only market in Asia where the cloud guys are building a meaningful amount” of their own capacity, Tan said. The only exception is Google building its own data center in Taiwan.

Structure's map of Singapore's colocation (wholesale and retail) data centers

Together, Google, Amazon, Microsoft, IBM, Alibaba, and Tencent use 136MW of data center capacity in Singapore, only 30 percent of which they lease from wholesale providers, Tan said. Microsoft’s own data center in Singapore came online about two years ago; Google launched its first building in the island nation last year and second earlier this year; Amazon announced it will build a Singapore data center this year as well. (While Amazon is technically leasing, it’s not really a wholesale data center lease. Like it does in Northern Virginia, the cloud giant is only leasing warehouse shells from a developer in Singapore, building everything else on its own, Tan said.)

All this is having a serious impact on wholesale data center providers in Singapore – companies like Digital Realty Trust and Global Switch. Depressed demand from cloud companies has pushed wholesale lease prices down, and wholesale construction activity has slowed down. There’s been a roughly 15 to 20 percent wholesale pricing decline in Singapore over the last 12 to 24 months, Tan said. The number of new construction projects by data center providers went from six in 2016 to two this year; three new builds have been announced for 2018.

No Signs of Doom

These trends don't spell the beginning of the end of the Singapore wholesale data center market as we know it, Tan warned. The supply-demand pendulum just happens to be on the supply-heavy side at the moment. Low prices and abundant inventory are likely to get cloud providers to start leasing more. It would be “foolish” of them not to take advantage of the situation, Tan said.

Structure’s numbers also don’t take into account major cloud platforms that don’t sell Infrastructure-as-a-Service. The likes of Salesforce and Facebook are also major wholesale data center users, and both have significant data center footprints in Singapore.

The market’s strong fundamentals should ensure healthy growth for wholesalers there in the long run, Tan said. It’s a strategic hub for access to other markets in the region, and it’s become even more so as Hong Kong, the other hub companies frequently consider when expanding into Asia, faces shortages of available land for data center construction and is viewed as less stable because of its close ties to mainland China. “Singapore is probably the most stable Asia Pacific market,” Tan said.

Ranking of Singapore's top data center providers in 2016 and 2017

Not only does it act as a springboard into top Asia Pacific markets in China, India, Japan, and Australia, Singapore is the best option for accessing many emerging markets in the region, such as Indonesia, Malaysia, Thailand, and Vietnam. “That’s why the cloud guys are investing more heavily” in their own Singapore data centers, Tan said, and that’s also why he expects the wholesale data center business there to pick back up.