Hong Kong, a global financial and logistics hub, is reinforcing its standing as a pivotal data centre market across the Asia Pacific. The convergence of robust connectivity, a favourable business environment, and increasing demand for digital infrastructure – driven by the Artificial Intelligence (AI) and cloud services – presents major opportunities within the corporate real estate sector. However, this growth also brings with it a unique set of challenges and legal complexities.
This article explores Hong Kong’s data centre real estate landscape from both a business and legal perspective, highlighting key opportunities, challenges, and emerging trends.
Business Opportunities: The Digital Gold Rush Continues
The data centre market in Hong Kong is projected to escalate from an estimated US$3.20 billion in 2024 to US$4.55 billion by 2030, representing a Compound Annual Growth Rate of 6.04%. This trajectory is supported by several critical drivers:
- Explosive Growth of AI and Cloud Services
- Rapid AI advancements, including Generative AI, and increased corporate adoption of cloud computing, are fuelling demand for data storage and processing. Hong Kong, with its strategic geographical location and connectivity to mainland China, is exceptionally well-placed to serve as a regional hub for these services. AI workloads require higher power density and advanced cooling, thereby stimulating demand for new facilities.
- Strong Regional Connectivity
- Hong Kong boasts a highly developed telecommunications infrastructure, featuring numerous submarine cables and extensive fibre networks. This makes it an appealing location for businesses requiring low-latency connectivity across Asia, attracting hyperscale and enterprise companies.
- Strategic Gateway to Mainland China
- The city’s close proximity to mainland China generates demand for data centre facilities to underpin the digital infrastructure requirements of both Chinese and multinational corporations. The recent implementation of the Greater Bay Area (GBA) Standard Contract (effective 1 November 2024) further eases cross-border data flow.
- Stable Business Environment and Investor Appetite
- Hong Kong’s free market system, competitive tax rates, and unrestricted flow of capital foster a stable and attractive environment for data centre investment and operations. Data centres are increasingly perceived as appealing real estate assets, attracting interest from institutional investors seeking stable cash flows and favourable risk-adjusted yields, owing to lengthy lease tenures and robust credit covenants. Direct investment volumes reached US$4.7 billion in 2024, with strong activity persisting into early 2025.
- Hyperscale Expansion
- Major global cloud providers, including Microsoft, Amazon Web Services, Google, Alibaba, Huawei, and Tencent Cloud, maintain a strong presence in Hong Kong. The expansion of hyperscale facilities, such as SUNeVision’s MEGA IDC, is a key impetus for market growth.
Business Challenges: Hurdles to Overcome
Despite the lucrative opportunities, several challenges persist:
- Land Scarcity and High Costs
- Hong Kong is a land-constrained city, rendering it challenging to secure large plots for hyperscale data centre development. This raises land acquisition and construction costs.
- Power Supply Constraints and AI-Ready Infrastructure
- Data centres are power-intensive, and AI-focused data centres require double the power density per server rack. While Hong Kong’s electricity supply is reliable, securing sufficient and affordable power for new, large-scale facilities remains a critical concern. A projected shortfall of 15-25 gigawatts of data centre supply is anticipated in Asia Pacific by 2028 due to insufficient AI-ready facilities. Many existing data centres were constructed prior to the current AI boom and may not be equipped to manage the significantly higher power density, advanced cooling systems, and structural reinforcements requisite for AI workloads.
- Construction Timelines and Supply Chain
- The demand for accelerated construction timelines mandates robust supply chain management for sourcing materials and technical equipment, which can prove challenging amidst global supply chain disruptions.
- Competition
- Whilst demand is high, the market is competitive, with established local (e.g., SUNeVision) and international players (e.g., AirTrunk, NTT DATA, Digital Realty, Equinix, Vantage Data Centers) vying for market share.
Legal Considerations: A Framework for Development
A comprehensive understanding of Hong Kong’s legal framework is essential for data centre development. Key areas include:
- Land Use and Zoning
- Statutory Outline Zoning Plans (OZPs): A fundamental understanding of permissible land uses under OZPs remains paramount. Data centres typically fall under “Information Technology and Telecommunications Industries”.
- Conversion of Industrial Buildings: The conversion of existing industrial buildings necessitates advising on the Lands Department’s concessionary measures and lease modification applications. The government’s 2024 Policy Address also hints at greater flexibility in land use, including rezoning certain commercial sites.
- Greenfield Sites and Government Tenders: Opportunities exist for securing greenfield sites through government land sale programmes and exploring avenues in planned development areas such as the Northern Metropolis. The government intends to deliver approximately 3,000 hectares of developable land over the next decade, envisioned as a regional innovation and technology hub.
- Environmental and Sustainability Regulations
- Energy Efficiency and Carbon Reduction: With the increasing emphasis on sustainability, data centre developments face heightened scrutiny regarding energy consumption. This includes compliance with environmental regulations and the growing focus on renewable energy sources and energy-efficient technologies. Hong Kong Exchanges and Clearing Limited has updated its Environmental, Social, and Governance Reporting Code, with mandatory Scope 1 and Scope 2 greenhouse gas emissions reporting commencing 1 January 2025, and full ISSB-aligned disclosures for large firms from 2026.
- Power Purchase Agreements: The industry is increasingly advocating for corporate Power Purchase Agreements with new renewable projects to meet sustainability targets, as exemplified by AirTrunk’s partnership with CLP Power for renewable energy procurement.
- Power Supply Agreements
- Reliability and Capacity: Ensuring a reliable power supply through agreements with power companies (CLP Power and Hong Kong Electric Company) is crucial, especially for AI workloads. Grid bottlenecks and project delays due to capacity issues are global challenges, and Hong Kong is not exempt.
- Data Governance, Security, and Cross-border Flow
- Personal Data (Privacy) Ordinance (PDPO): Compliance with the PDPO remains critical, particularly concerning the collection, storage, and processing of personal data. The Privacy Commissioner for Personal Data issued the “Artificial Intelligence: Model Personal Data Protection Framework” in June 2024, providing recommendations for AI governance and personal data privacy.
- Cybersecurity Legislation: A new cybersecurity law, the “Protection of Critical Infrastructures (Computer Systems) Bill,” was introduced to the Legislative Council in December 2024. This bill, once enacted, will impose security obligations on data centres.
- Cross-border Data Flow (GBA Standard Contract): The “Standard Contract for Cross-Boundary Flow of Personal Information within the Guangdong-Hong Kong-Macao Greater Bay Area” (GBA Standard Contract), implemented in November 2024, is a major development. This simplifies cross-border data flow within the GBA but does not override Hong Kong’s PDPO.
- Construction and Procurement Contracts
- AI-Specific Requirements: Contracts will need to specify requirements for high-density power, advanced cooling, and structural reinforcements to accommodate AI infrastructure.
- Supply Chain Resilience: Robust contracts are needed to address supply chain disruptions and accelerated construction timelines.
- Financing and Investment
- Growing Investment Appetite: The sector continues to attract significant institutional investment. This necessitates understanding diverse financing arrangements, including project financing, joint ventures, and platform investments.
Emerging Trends: Shaping the Future
- AI-Driven Design and Operations: New facilities will prioritize high power densities and advanced cooling solutions. This will influence land selection, building specifications, and overall design and construction strategies.
- Heightened Focus on Sustainability: The move towards net-zero commitments will continue to drive demand for renewable energy adoption. Data centres will increasingly explore innovative solutions for energy sourcing and consumption. The Hong Kong Monetary Authority’s Sustainable Finance Action Agenda (October 2024) further underscores Hong Kong’s commitment to sustainable development in the financial sector.
- Edge Computing Evolution: The increasing need for low-latency processing closer to data sources will continue to foster the development of smaller, more distributed “edge” data centres, presenting new real estate opportunities.
- Modular and Prefabricated Construction: To meet accelerated timelines and control costs, modular and prefabricated construction techniques are likely to become more prevalent in Hong Kong.
- Government Facilitation and Policy: The 2024 Policy Address highlights plans for developing new quality productive forces and attracting high-calibre talents, which indirectly supports the digital infrastructure ecosystem. Staying on top of these policy changes and government support schemes is crucial.
- Cybersecurity as a Paramount Concern: With new legislation for critical infrastructure protection on the horizon, cybersecurity will be an even more central legal and operational concern for data centre operators.
Conclusion
Hong Kong’s data centre real estate market is dynamic, driven by AI, cloud growth, and regional demand. Success requires navigating legal complexities – especially in data privacy, cybersecurity, and cross-border flow – while adapting to trends like AI-ready infrastructure and sustainability. As Hong Kong solidifies its role as a regional data hub, expertise in data centre real estate will only intensify.
