The advent of AI and other advanced technologies has significantly increased the demand for data centres, particularly for services such as data storage, management, backup, and recovery. According to research by Mordor Intelligence and statistics from the Hong Kong Government, the data centre market in Hong Kong is estimated to be valued at around US$3 billion in 2023, with an expected growth to US$5.7 billion by 2028.

Why Hong Kong is Poised to Become a Key Data Hub? 

As one of the world’s most developed financial centres and logistic hubs, Hong Kong serves as the regional headquarters for a lot of multinational corporations where they set up branches and strategically locate their data centres close to the business here. The close proximity with the mainland China also creates a substantial demand for securing data centre facilities and services to support their business need and growth.

Hong Kong’s robust telecommunication infrastructure further enhances its appeal. The city is home to more than 300 internet service companies providing broadband and internet services. Additionally, the telecommunication networks in Hong Kong are connected to 12 external submarine optical fibre cable systems. The city’s electric power supply reliability exceeds 99.997%, instilling confidence in companies that require highly reliable and fast-speed internet capabilities, such as financial institutions and IT firms.

Hong Kong is also renowned as one of the freest economies in the world. Enterprises benefit from a low tax rate, a free market system, free trade, free flow of capital and more. Information is free to flow with no censorship of content. This is crucial to the development and operation of data centres. 

CBRE’s recent Asia Pacific Data Centre Trends for Q1 2024 revealed a strong investor demand for data centres, with a wide range of buyers seeking stabilized assets. However, there remains a lack of stock for sale. 

Accommodating Data Centres in This Land-Scarce City 

Despite the scarcity of land in Hong Kong, there are ways to develop data centres. One common practice is the conversion of industrial buildings into data centres. Owners of eligible industrial buildings located in “Industrial”, “Commercial”, or “Other Specified Uses (Business)” zones can apply to the Lands Department for a waiver to change part of the building into data centre use at zero waiver fee.

For high-tier or large-scale data centre that may involve redevelopment of buildings, owners of the industrial lot can apply to the Lands Department for lease modification. The Department will then assess the premium for the conversion of use based on the development intensity and the actual data centre use. 

Another approach is to acquire sites suitable for data centre use. The Government may initiate tender or auction of available sites for data centre development after considering the town planning and market needs. Over the past decade, Hong Kong Science and Technology Parks, the public corporation set up by the Hong Kong Government, initiated several tenders for sites in Tseung Kwan O Industrial Estate for data centre use. 

While prevailing high interest rates continue to weigh on data centre investment in Asia Pacific, investment volume in 2024 is expected to recover from last year’s low base in the region. In Hong Kong, CBRE noted that some foreign companies with an existing presence are willing to expand, or even relocate with increased size. When looking to develop data centres, the process could be complicated with some land and legal issues. Developers should remain vigilant and seek professional advice when needed. 

For further information, please contact Chester Leung, Senior Director, Valuation & Advisory Services, CBRE Hong Kong as the details below.