[No Place for IDC]③ Korean Data Centers Attracting Attention from Global Big Players

Global Major Investors Building Domestic Data Centers
Recognized as Promising Real Estate Investment
High Domestic Demand Due to IT Industry Growth
Good Accessibility to Asia Region
Attractive Investment in Affordable, Quality Electricity
Focus on Telecommunications Infrastructure as Investment Destination

Editor's NoteLooking up the word 'NIMBY' in the Britannica dictionary shows it as an acronym for 'Not In My BackYard.' It refers to collective actions by local residents opposing the establishment of undesirable facilities. Typically, this includes prisons and waste landfills, but Internet Data Centers (IDCs) also struggle to find acceptance due to perceptions that they consume massive amounts of electricity and generate electromagnetic pollution. The demand for IDCs is skyrocketing annually with the rise of artificial intelligence (AI), cloud computing, and the metaverse. Although investments are expanding every year, suitable locations for construction are scarce. This article examines the current status of data centers nationwide and on-site reports to explore how to eliminate the NIMBY phenomenon surrounding IDCs, which serve as fundamental infrastructure for future industries.

[Asia Economy Reporter Cha Min-young] Amid difficulties in establishing data centers due to opposition from local residents across the country, major global investors are recognizing South Korea as a data center hub in Asia and increasing their investments. As the data center industry expands to hyperscale levels (operating over 100,000 servers), forming a massive market, there are growing calls to closely monitor the movements of key investors and attract large-scale investments.

Singapore Investment Corporation and Canada Pension Investment Board Enter Korean Data Center Market

In March, Equinix, one of the two giants in the global data center industry, officially announced the construction of hyperscale (operating over 100,000 servers) data centers in Seoul in partnership with the Singapore Investment Corporation (GIC). As data centers, once considered exclusive to the IT sector, gain attention as promising real estate investment destinations, financial investors (FIs) are showing increased interest. Equinix, the largest data center REIT company in the U.S., and GIC established a joint venture (JV) with an investment of $525 million to open two data centers in 2023 and 2024, supplying 45 MW of power between them.

The Canada Pension Investment Board (CPPIB), the largest pension fund in Canada, partnered with Korean real estate developer Pacific Asset Management to build a mega data center with a total floor area of 99,070 square meters?approximately 14 times the size of a soccer field?in Jukjeon, Yongin. The power capacity will reach 100 MW. GS Engineering & Construction plans to establish Epoch PFV with UK-based private equity firm Actis and Pavilion Asset Management, investing 244.5 billion KRW to build a data center spanning three basement floors to eight above-ground floors. Pure Data Center Group announced a collaboration plan with APAC logistics real estate specialist Logos in December 2021 to expand in the Asia-Pacific region, including South Korea.

Although construction plans have been announced, actual building progress faces challenges. Most projects are still struggling with site selection. Due to the longstanding misconception that data centers are undesirable facilities, investment site selection is difficult. However, considering the massive overseas capital investing in the domestic market and the global companies' servers moving in, there are calls for more proactive investment attraction efforts.

South Korea Gains Attention as East Asia Data Center Hub

Domestic data center demand is evident in numbers. According to the Ministry of Trade, Industry and Energy and Korea Electric Power Corporation, as of June this year, there are 146 data centers (1,742 MW) in South Korea, and the number of applications for electricity usage notifications submitted to KEPCO is 466 (32,263 MW) by 2029. Since many domestic and foreign operators enter as consortia, it is difficult to distinguish between domestic and foreign operators separately, but a significant portion of the demand is expected to come from overseas. Lee Kyung-ja, an analyst at Samsung Securities, noted, "Until 2021, the main target was Europe, but from 2022, expansion in the Asia-Pacific region will be prominent," adding, "Both Equinix and Digital Realty have identified Asia as a promising market and are establishing aggressive investment plans."

South Korea's emergence as a data center hub in East Asia is a relatively recent development. According to Cushman & Wakefield's '2022 Global Data Center Market Comparison Report,' South Korea ranks as the fourth-largest market in the Asia-Pacific region. It surpasses competing regions such as Tokyo and Osaka in Japan and Shanghai and Beijing in China, but globally, it ranks outside the top 10. Initially, geopolitical risks related to North Korea were considered a weakness, but changing perceptions that South Korea is safer than Japan's earthquake risks or China's government censorship have increased interest in the country.

Cloud Service Expansion Drives Domestic Data Center Demand Surge

One advantage is the abundant local demand. With the 'Digital New Deal' policy continuing from the Moon Jae-in administration and the trend of Korean companies transitioning to the cloud, global hyperscalers such as Amazon Web Services (AWS), Microsoft (MS), Meta (Facebook), and Google are expected to secure more corporate customers. Most of these companies use domestic telecom or IT service providers' data centers through colocation leasing. According to the '2022 Global Technology Trends Survey,' 58% of leading domestic IT companies plan to migrate more business functions to the cloud. Among respondents, 60% intend to move more critical business applications to the cloud, and about half (47%) plan to migrate security functions to the cloud.

Another differentiating factor is the high power quality and relatively low electricity rates. According to the Ministry of Trade, Industry and Energy, as of 2021, South Korea's industrial electricity rates are only 83% of the average among OECD countries. The average outage duration per household is also short at 8.9 minutes, compared to 47.3 minutes in the U.S., 38.4 minutes in the U.K., and 10.7 minutes in Germany, indicating stable energy supply. Additionally, the relatively lower use of cooling water during the autumn and winter seasons, when external temperatures drop sharply, is advantageous for IDC operations.

However, some argue that a balanced perspective considering energy supply plans alongside unconditional foreign investment attraction is necessary. Among the top 10 energy-consuming buildings in Seoul in 2020, three were IDCs, including KT Mokdong IDC1 (2nd), Gasan IDC (3rd), and KT Mokdong IDC2 (7th). While the total greenhouse gas emissions (tCO2Eq.) are lower than Seoul National University, which ranks first, the greenhouse gas emissions per heating area (tCO2Eq./㎡) of KT Mokdong IDC1 are 90 times higher than those of Seoul National University.

An industry insider said, "From a business attractiveness perspective, investment attraction is positive, but issues such as energy supply require further discussion," adding, "It seems that data centers were overlooked when drafting the 2050 carbon neutrality roadmap, so supplementation is needed."