Korea may surpass Singapore to become Asia's fifth largest data center market, expert says

With surging demand for data centers, Korea has become a major contender to house the digital facilities with its robust technology infrastructure and accessibility, John Pritchard, head of Tenant Advisory Group at Cushman & Wakefield Korea, said.

Gak Sejong, Naver's second data center, located in Sejong [NAVER CLOUD]

The pace of digital transformation, coupled with advancements in AI and cloud computing technologies, has accelerated dramatically since the onset of the Covid-19 pandemic.

With surging demand for data centers, Korea has become a major contender to house the digital facilities with its robust technology infrastructure and accessibility across regions, John Pritchard, head of Tenant Advisory Group at Cushman & Wakefield Korea, said.

"Based on the current development pipeline, Korea has the potential to reach 1,485 megawatts in operational capacity, overtaking Singapore (1,307 megawatts) as the fifth-largest data center market in the region based on capacity in the coming five to seven years," Pritchard said in an e-mail interview with the Korea JoongAng Daily on March 11.

Accompanying this growth, however, are concerns about overcrowding in the capital region, coupled with escalating conflicts with local communities, underscoring the need for careful planning and sustainable development strategies in Korea's data center expansion efforts.

Data center markets in Asia as of second half of 2023 [LEE JEONG-MIN]

Emerging data center hub

In a burgeoning trend, both domestic and international players are investing in data centers across Korea.

Equinix, a California-based data center and colocation provider, recently unveiled its second retail International Business Exchange (IBX) colocation facility in Goyang, Gyeonggi. Equinix established its first data center in 2019 and now operates in over 30 countries with 240 data centers.

Korean tech giants like Naver and Kakao are also building their own data centers.

Naver's Gak Sejong, unveiled in Sejong in November 2023, has a server capacity that exceeds 600,000.

Kakao completed its inaugural in-house data center in Ansan, Gyeonggi, with over 120,000 servers and is set to commence operations this month. The advanced infrastructure is part of the recovery efforts following a fire at a SK C&C data center in Pangyo, Gyeonggi in 2022.

This graph shows the current maturity status of 30 data center markets across Asia Pacific. [CUSHMAN & WAKEFIELD KOREA]

"Growth continues to be driven primarily by AI and cloud, both across Asia Pacific and in Korea," Pritchard said. "Locally, high internet usage and phone dependence from both a consumer and corporate perspective drive the market; strong demand from the gaming, media entertainment industries is a particular driver for the Korea market, alongside a strong technology sector."

The push for digital transformation by companies is fueling Korea's rise as a data center hub.

“Korea continues to be a leader in digital transformation, with plans to bolster local cloud computing to propel advancements in AI," a spokesperson for Empyrion DC, a Singapore-based data center operator, said. "This has led to an increased demand for data centers, whose growth has traditionally been concentrated within and around the Seoul metropolitan area, which boasts a well-developed network infrastructure and convenient access for enterprise and cloud companies."

A map of data center development in the greater Seoul area as of the second half of 2023 [CUSHMAN & WAKEFIELD KOREA]

Decentralization

While the burgeoning demand for data processing capacity in Korea amid the digital transformation is expected to persist for several years, the concentration of the supply in the greater Seoul — encompassing Seoul, Gyeonggi and Incheon — raises concerns about challenges in securing tenants and exacerbating the downturn in the real estate market.

Greater Seoul accounted for 77 percent of Korea's data center market as of the second half of 2023, Cushman & Wakefield reported.

Challenges in greater Seoul, such as high land acquisition costs and power restrictions, have prompted decentralization efforts by the government, leading to a decrease in greater Seoul's market share from 85 percent in the first half of 2023.

Incentives, including reductions in electricity facility levies and investment subsidies, are being offered to encourage data center development in neighboring provinces with adequate power and infrastructure . President Yoon Suk Yeol recently pledged to invest 360 billion won ($274 million) in Chuncheon, Gangwon, to create a massive data center complex in the city as part of a plan to enable the northern province to become a hub of high-tech industries and tourism.

Despite these efforts, Cushman & Wakefield predicts that 66 percent of demand for data center power supply by 2032 will remain concentrated in greater Seoul, highlighting the need for more effective decentralization policies.

John Pritchard, head of Tenant Advisory Group at Cushman & Wakefield Korea [CUSHMAN & WAKEFIELD KOREA]

“If data centers are spread too far across the region, service effectiveness will drop, and additional cabling and re-routing can lead to higher consumer costs,” Pritchard said.

Pritchard suggested that factors like robust terrestrial fiber networks, proximity to transit hubs and access to a skilled workforce would be critical for developing alternative data center locations. Additionally, streamlined processes and high transparency are vital to accommodate customer demand effectively.

Banners opposing the construction of a data center are hung on balconies at an apartment complex in Hogye-dong, Anyang, in Gyeonggi. [CITY COUNCIL MEMBER KIM DO-HYUN]

Community conflicts

The rapid expansion of the data center market in greater Seoul has led to an increase in civil complaints regarding high-voltage electromagnetic waves, noise pollution and heat islands.

"Data centers in close proximity to residential communities are also causing concern in Korea more than in other markets, both in terms of their overall operation and the intense cabling and infrastructure they require," Pritchard said.

In October 2023, a data center development plan in Anyang, Gyeonggi, was scrapped after the developer sold the proposed site. Similarly, a colocation data center project in Gimpo, Gyeonggi, has yet to begin construction, despite receiving permits in 2021.

Conversely, the completion of the second LG Uplus Pyeongchon center faced civil complaints but ultimately succeeded due to efforts such as signing long-term agreements with city authorities and civil unions to install shields on the underground section of high-voltage power cables.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]