Strong Demand in ASEAN Data Centers, Supply-Demand Imbalance Persists

Overview

This report systematically analyzes the ASEAN data center market based on UBS expert interviews and market checks, covering regional supply-demand dynamics, pricing mechanisms, competitive landscape, and representative company valuations. The core conclusion is that the ASEAN market remains structurally undersupplied, with high-growth cloud and AI computing demand driving continuous capacity expansion. Third-party operators, leveraging delivery efficiency and scale advantages, dominate incremental capacity additions. Current valuations do not fully reflect the overseas expansion potential of Chinese operators like GDS.

Core views

Demand remains robust: Experts estimate total ASEAN data center capacity at ~3–4 GW (total power), with net annual additions of 2–3 GW expected over the coming years. Cloud and AI computing demand is expanding at a CAGR above 50%, serving as the primary growth driver. Evolving regional hub structure: Singapore maintains its core status; Johor, Malaysia has emerged as the second-largest hub due to its strategic location and cost advantages; Thailand is rapidly rising as a third hub, driven by tightening power/water supply in Johor and hyperscalers’ need for geographic diversification. Supply and pricing dynamics: The market remains fundamentally a seller’s market (demand consistently exceeds supply), yet rent behavior exhibits buyer-market characteristics—primarily because demand is dominated by highly negotiating hyperscale cloud providers. Current rent levels remain stable, largely due to unchanged capital expenditure trends. Contract terms continue to improve: lease durations have significantly extended to 25–30 years, with annual rent adjustments now commonly linked to inflation indices, enhancing long-term cash flow visibility for operators. Aside from limited self-builds by U.S. hyperscalers, new demand is predominantly fulfilled by third-party operators due to their shorter delivery cycles and superior cost efficiency. Operator competition and returns: Capital strength is the primary entry barrier, followed by project execution capability and industry reputation. Leading operators have full order books, with estimated returns on invested capital [(rent – operating costs) / total capex] reaching 9–12%. Economies of scale are increasingly evident: large operators (regional leaders operate ~500 MW, with GW-scale pipelines under development) enjoy clear advantages in equipment procurement (lower costs, shorter lead times) and financing costs. While technological breakthroughs reducing power consumption represent a potential risk, experts assess this likelihood as low. GDS valuation analysis: Valuation employs a Sum-of-the-Parts (SOTP) approach. Assuming DayOne is valued at its Series C round ($11.18/share), GDS’s China business currently trades at 11x 2026E EV/EBITDA—a relatively low multiple that fails to price in DayOne’s embedded option value. Industry experts acknowledge DayOne’s strong execution track record and reputation. The report expects more Chinese data center operators to accelerate overseas expansion, potentially triggering sector-wide valuation re-rating.

Analysis framework

The report adopts a bottom-up industry check methodology: First, expert interviews quantify total regional supply (existing capacity) and effective demand (new signings/committed power) to assess the supply-demand gap. Next, it analyzes demand composition (hyperscaler-dominated), pricing behavior, and evolving contract terms to infer actual market dynamics. Operator scale, capital efficiency, and development pipelines are then evaluated to assess competitive barriers and return profiles. Finally, GDS is selected as a representative case, valued via SOTP to isolate business segment values and compare against current trading levels for valuation assessment. Throughout, conclusions are grounded in empirical data (capacity, growth rates, ROIC) and industry logic (hub migration drivers, contract term improvements).

Methodology notes

• Industry/ Sector Analysis FrameworkSupply-demand framework

  Supply-Demand Framework

  Assesses market nature (seller’s vs. buyer’s market) and price elasticity by comparing total supply with effective demand. This report identifies ASEAN as fundamentally a seller’s market due to persistent demand exceeding supply, yet rent behavior reflects buyer-market traits because demand is highly concentrated among powerful hyperscalers, highlighting how demand structure shapes actual pricing outcomes.

• Industry/ Sector Analysis FrameworkVolume-price decomposition

  Volume-Price Decomposition

  Decomposes industry growth into 'volume' (e.g., IT power capacity expansion) and 'price' (e.g., rental rates) for independent analysis. The report quantifies demand 'volume' growth (>50% CAGR, 2–3 GW/year additions) while noting 'price' (rents) remains stable—but contract terms (duration, adjustment mechanisms) are improving, revealing that industry value creation stems not only from scale but also from business model optimization.

• Competition & Strategy FrameworkEconomies of scale / learning curve

  Economies of Scale

  Larger scale reduces unit costs and improves operational efficiency. The report highlights that leading operators leverage greater procurement volumes and financing scale to achieve advantages in equipment costs, delivery speed, and funding costs, directly boosting ROIC to 9–12%, confirming scale as a core competitive barrier in the data center industry.

• Valuation MethodologySOTP (Sum-of-the-Parts) Valuation

  SOTP Valuation

  Values different business segments or assets (e.g., GDS China, DayOne) separately and sums them—ideal when subsidiaries or new ventures are undervalued by the market. The report argues GDS’s current valuation excludes DayOne’s post-Series C fair value, and SOTP clearly reveals potential valuation upside.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• GDS Holdings Limited (GDS.O, 9698.HK)

  Leading Chinese data center operator actively expanding into ASEAN via the DayOne platform; current valuation does not fully reflect its overseas potential or DayOne’s execution value

  Strengths

  DayOne’s project execution capability and reputation recognized by industry experts; scale-driven advantages in procurement and financing costs; optimized contract terms enhance long-term earnings stability

  Risks

  Slowing growth in China’s cloud/AI sector; reputational damage from outages or high electricity prices; persistently high interest rates increasing financing costs; intensified regional competition from accelerated data center supply

Key data

• Total ASEAN Data Center Capacity3–4 GWTotal power (IT power × PUE), current level
• Annual Net New Capacity Additions2–3 GWForecast for next few years
• Cloud & AI Demand Growth Rate>50% CAGRCompound Annual Growth Rate
• ROIC of Leading Operators9%–12%Formula: (Rent – Operating Costs) / Total Capex
• GDS China Valuation Multiple11x2026E EV/EBITDA
• DayOne Series C Valuation$11.18/shareBenchmark cited in report

Impact & implications

The persistent supply shortage and strong demand growth provide a stable operating environment for existing operators. Improved contract terms (long duration, inflation-linked adjustments) significantly enhance cash flow visibility and inflation resilience over the next 5–10 years. Third-party operators, benefiting from delivery efficiency and scale advantages, will continue capturing incremental market share, likely increasing industry concentration. For Chinese data center firms, ASEAN’s high-growth environment offers a strategic window for overseas expansion. Companies like GDS that successfully replicate domestic expertise abroad could see their overseas businesses re-rated, acting as a catalyst for share prices. Current sector valuations do not fully reflect this trend, leaving room for re-rating.

Risks

• Cloud and AI demand growth falls short of expectations
• Operational failures at one or more data centers damaging operator reputation
• Higher-than-expected interest rates increasing industry financing and operating costs
• Tighter or more uncertain regional regulations (e.g., licensing, PUE requirements)
• Slowing growth in China’s domestic cloud and AI sectors impacting GDS’s core business
• Accelerated regional supply additions worsening competitive dynamics