The Latest: AyalaLand Logistics Holdings Corp (ALLHC) and FLOW Digital Infrastructure are partnering to develop carrier-neutral data centres in the Philippines. It will target the delivery of a 4.5MW-capacity facility ready for service by Q423.
Implications: Fitch Solutions believes that it is an opportune time for digital infrastructure investments in the Philippines: more high-capacity data centres will be needed to support increasing digital consumption via mobile and fixed broadband connections in this emerging market.
We note that the data processing and hosting market in the Philippines is still relatively small and low-value, but there is a strong growth trend because of the increased use of cloud services and the consumption of online content from a low base, especially within the large young demographic. Rising income levels and the shift to remote working driven by Covid-19 pandemic are also driving growth. There was a notable wave of investment into data centre facilities in 2020 and 2021 based on the expectation that cloud delivery models will shift to local provision to meet performance requirements and data regulations, meaning less reliance on regional hubs such as Singapore.
With investors’ rising focus on developing sustainable data centres powered by renewable energy sources, the Philippines’ rich potential in renewables is a driving factor contributing to the country’s attractiveness in the data centre space. Our Philippines Renewables analysts have posited that geothermal energy generation is well-established in the country, having dominated the non-hydro renewables capacity mix and contributing an estimated 10.6% to the total electricity generation in 2021. This is likely to excite investors as geothermal energy does not suffer from intermittency problems and can be considered as a baseload source, and an efficient and attractive technology of choice. Furthermore, we expect an improvement in the regulatory environment for the renewables sector in the coming years, with the Department of Energy (DoE) working on two key renewable energy policies - the Renewable Portfolio Standard and the Green Energy Option - to further encourage the development of the market.
What’s Next: Currently, telecoms operators are the key investors in the sector, with Philippine Long Distance Telephone Co (PLDT) announcing the construction of a hyperscale data centre in Manila in October 2021, which will be the largest facility in the country. Similarly, Globe Telecom is growing its presence in the cloud business, with flagship MK2 data centres in Makati, Quezon City, Cebu, Manila and Mandaluyong.
Therefore, we believe that main downside risk for AyalaLand and FLOW will be that of competition: apart from telecom operators, new entrants include Singapore's SpaceDC, which announced plans in February 2022 for a 72MW hyperscale data centre campus in the Manila region that it claims will be the largest in the country and have on-ramps to the cloud platforms of AWS, Microsoft Azure and Alibaba Cloud. In addition, YCO Cloud Centers (YCC) is eyeing a total capital deployment of USD500mn from 2022 to 2024 in various projects, beginning with its flagship data centre project, YCO Manila Digital 1. Competition is only expected to intensify in the medium term, given the attractiveness of the market.
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