The expansion of the Southeast Asia data centre market and the importance of its development follow the VC trends Southeast Asia is currently witnessing. Since 2019, exponential growth in the region’s data market has seen an average 13.2% increase in the sector’s CAGR. This spike reflects how digitalisation is increasing and is a testament to the speed and ambition of ASEAN to dominate the cloud industry, with at least 200 operational colocation facilities recorded in operation in Q1 of 2022. 

Supply and demand in the Southeast Asia data centre market

The changing sentiment towards the data centre market has allowed an average occupancy rate of 60-70% across the region, with Singapore leading with an occupancy of over 85%. The movement of customers into the digital space, or the “cloud”, has increased the creation of cloud regions by hyper-scale cloud service providers and internet service providers, which has also enhanced the efficiency of the organisations now operating in the sector in ASEAN. 

How startups in Southeast Asia can leverage cloud ecosystems for growth

The demand for the cloud has grown significantly within numerous business institutions and sectors such as banking, financial services, and insurance (BFSI), manufacturing, energy, oil & gas, transportation, and others, subsequently attracting cloud service providers to invest in the industry. For example, Standard Chartered and Microsoft signed a three-year partnership to uplift digital transformation in the financial institution by accelerating and deploying its infrastructure into the Microsoft cloud platform. 

The drive for investments in the cloud 

As the demand for digital business facilities explodes post-pandemic, the expansion of the cloud industry in Southeast Asia follows the VC investment, especially regarding companies working in the data sector from the region. According to the International Data Corporation, one in three companies will derive more than 15% of their revenue from digital sales and markets by 2023. 

This increased reliance on the digital economy is up from one in six in 2020 and has a significant knock-on effect on the increase in investment and interest in Southeast Asia as a data centre hub. It also demonstrates the sector’s importance for the regional economy, especially considering that, according to Uncover 2022, Southeast Asia has over 420 million internet users and one of the highest internet penetration rates in the world. 

Importance of cloud data for ASEAN economies

As outlined in the IDC report An Outlook on Southeast Asia’s Cloud Trends, Adoption and Opportunities” by senior researcher Prapussorn Pechkaew: “Despite the uncertainties (of the post-pandemic landscape), cloud spending [in Southeast Asia] remains strong… as the cloud opens up doors for enterprises to enable new digital capabilities and new business models”. 

This report also explains the need to move to the cloud to remain competitive in the new digital normal. Unfortunately, the market is still vulnerable and can be derailed by geopolitical tensions, inflation, and global conflicts. The effect is evident in the stories of Singapore and Indonesia as examples of what is occurring in the Southeast Asia data centre market. Due to the government’s interference in investments via the moratorium in 2020, the industry’s growth has slowed. 

This slowdown spurred investors to move to neighbouring countries, such as Vietnam and Indonesia. The zealous control of the Singaporean cloud market initiated the push for VCs to invest elsewhere in the region. 

The public cloud and political interference

The political and economic influence of the Southeast Asia data centre market has led to the increased involvement of governments and private investors in the development of the infrastructure and facilities required for a stable cloud and data management sector. 

Between 2018 and 2023, Vietnam will likely see a CAGR growth of 32% in the data centre sector. They are followed by the Philippines and Indonesia, with both countries expecting a CAGR growth rate of 26% during the same time period. Governmental support for this growth is a prime example of the importance of the newfound cloud industry in bolstering economies and making doing business more viable. Potential roadblocks and hindrances are more visible since the Singaporean government’s lifting of the moratorium on investment in 2022 and the relaxation of the regulations, which highlighted how governmental support is necessary if the country is to remain competitive in the data centre market.

Much of the growth of data centres in the region is due to the current VC trends Southeast Asia is experiencing. Many investors are eager to fund cloud computing developments as they realise it is essential to maintaining the growth of the digital economy in the region. However, supporting this growth as tensions arise and collocations saturate the market will not be easy. Hopefully, the exponential growth trend will continue, and VC investments will trickle through the infrastructure to help the region capitalise on its position as a digital hub.