SINGAPORE – For most people, the term data centre brings to mind endless rows of cabinets filled with black boxes and blinking lights, housed inside a vault-like windowless building with few human beings.
It sounds like a mundane and soulless real estate business. But there is so much more to a data centre operator than just keeping the servers on 24 hours a day, seven days a week.
Managing a portfolio of these buildings as a successful and profitable real estate investment trust (REIT) means operators have to look beyond simply offering real estate space and sustainable energy solutions to attract customers, as most data centres are already offering them as table stakes.
But as the global AI boom sends tech stocks soaring, data centre REITs are also facing tougher questions from investors about their yields and risk-adjusted returns.
For Keppel DC REIT, the answer lies in strategising the right mix of tenants to ensure sustainable long-term growth, Loh Hwee Long, chief executive of the manager of the REIT, said in an interview with The Straits Times.
Securing contracts with hyperscalers – tech giants that operate large-scale cloud networks – may seem like a stable source of income, but it may not be the most lucrative as such single-tenant contacts are usually locked in for as long as 15 years at the minimum, he points out.
To ensure its portfolio continues to benefit from the growing demand for data centres, Keppel DC REIT leases only around 30 per cent of its assets on long contracts. The rest of its tenants are on shorter leases, renting the space and facilities from the operator for their own server hardware, a practice known as colocation.
Loh likens this hybrid model of hyperscaler contracts and colocation to the anchor tenant model of a shopping mall.
“Actually, it’s just like VivoCity,” Loh chimes, pointing to the shopping centre down the road from Keppel’s office at HarbourFront.
“The 30 per cent is basically your anchor tenant, like a supermarket or department store, where the rates are a bit lower and not too interesting from a growth perspective. Then you’ve got the smaller pop-up stores that you can really drive up the yield with much higher rents.”
However, unlike a sprawling mall like VivoCity, Keppel DC REIT’s data centres do not house a highly diverse mix of tenants.
Instead, Keppel DC REIT complements its mix of hyperscalers primarily with larger customers such as financial institutions and government bodies.
The focus on this unique sub-segment gives the data centre operator more levers to drive organic growth, Loh said. “It’s no longer about 1 per cent to 2 per cent annual growth, it can be more. And that becomes our differentiator.”
Hyperscalers accounted for half the group’s top 10 clients, according to its results for the first half of 2026 ended June 30. The top unnamed client was a hyperscaler contributing 43.5 per cent of the portfolio’s total rental income of $210.4 million. Meanwhile, the biggest non-hyperscaler tenants contributed about 15 per cent.
Japan a ‘tier one’ market
This strategy is also more suited for the markets that Keppel DC REIT is primarily operating in. While its portfolio includes data centres in Europe and Australia, it sees Singapore, Japan and South Korea as the key “tier one” markets.
Keppel DC REIT announced on Sept 1 its acquisition of two freehold colocation data centres in the Greater Tokyo area for around $1.5 billion, taking its assets in the country to five. Loh noted that market conditions in Japan, Singapore and South Korea would allow the REIT manager to capitalise on strong demand and act as a price-setter for higher rents.
These are mature markets that have not only deep fibre connectivity and established hyperscaler clusters, but also high barriers to entry for new data centre operators due to supply constraints arising from a lack of land and power.
According to Loh, building a new data centre in Japan could take five to seven years, as the suspension of nuclear power has compounded energy constraints, while challenges in the construction sector could cause further delays.
He added that tier one markets offer greater growth potential than markets with abundant data-centre capacity, where hyperscalers could use their bargaining power to secure more favourable lease terms.
Watching for opportunities in Malaysia
While Malaysia’s regional prominence is growing – with 34 providers reportedly established in Johor – this market is not a current priority for Keppel DC REIT, as data centres there handle different workloads than those in the REIT’s portfolio, Loh said.
In contrast, hyperscalers are more likely to house sensitive, business-critical workloads in Singapore. While the market may not be the biggest in terms of scale, these clients are willing to pay a premium for reliability and peace of mind, he explained.
Still, Keppel DC REIT will keep an eye out for the right investment opportunity in Malaysia, provided it is appropriately priced.
Loh conceded that Johor’s data centre market benefited from a spillover effect after Singapore imposed a moratorium in 2019 to manage its strained land and energy resources. Data centre operators were naturally drawn to the neighbouring Malaysian state’s abundance of land and energy.
Regional demand remains strong, and the additional 200 megawatts of new capacity to be dispensed by the Government among four data centre operators, including Keppel Data Centres, would likely still fall short of meeting Singapore’s growing needs, Loh said.
Singapore’s edge as a data centre hub
The Republic’s role in the data centre sector is more than just being a reliable, safe and secure place for hyperscalers to park their servers.
Just as its airport and seaports connect Singapore to the rest of the world, the country also serves as a critical digital interconnectivity hub in South-east Asia, anchored by the region’s largest cluster of subsea cables, Loh said.
According to a 2025 report by the Center for Strategic and International Studies, a US think-tank, Singapore already has 28 subsea cables landing here. The Government plans to double that number within 10 years.
Loh, who took over the helm at the REIT manager in 2023, pointed out that Singapore’s strong fundamentals as a data centre hub are also bolstering local capital markets, drawing more funds to support the build-out of its digital infrastructure.
The market has heated up considerably since Keppel DC REIT became the first pure-play data centre REIT to list on the Singapore Exchange in 2014. Two more have since launched their initial public offerings (IPOs) here, most notably Japan-based NTT DC REIT in July 2025 – marking Singapore’s largest listing in four years with US$773 million (S$980 million) raised. Digital Realty’s Digital Core REIT made its SGX debut in 2021.
Blackstone-backed AirTrunk is reportedly targeting a REIT IPO on SGX before the end of 2026. Large-cap companies like Singtel and CapitaLand are also increasingly looking at data centres to complement their core businesses.
The surge in data centre investments has driven an increase in Singapore-based private funds deploying capital into the regional sector. This has become a critical part of the Republic’s broader digital infrastructure ecosystem, Loh said.
“We have a one-stop shop from not only the physical capability perspective, but also the connectivity, funding and capital structure – we have it all here.”
Are data centre REITs still a good play?
Loh acknowledged that with the current AI boom, investors may see that their investments in data centre REITs are not generating as much returns as tech stocks.
With the latest Tokyo acquisitions, Keppel DC REIT owns 27 data centres worth $7.6 billion across 10 countries, with 52 per cent of its assets under management anchored in Singapore.
For the first half of financial year 2026, Keppel DC REIT announced a distribution per unit of 5.7 cents, 11.3 per cent higher year on year, on the back of a strong operating performance as well as the acquisitions of Tokyo Data Centre 3 and the remaining interests in Keppel DC Singapore 3 and 4.
As at Sept 16, Keppel DC REIT was trading at $2.12, 5.3 per cent lower since the start of 2026 and around 15 per cent lower over a five-year period.
“When you invest in tech stocks like SpaceX, there is obviously a much higher risk play, and therefore, you get much higher potential returns,” Loh said.
“On the other hand, investing in a data centre REIT entails investments in lower-risk real assets, and therefore, the returns are risk-adjusted and will have to be commensurate.”
He noted that investors are also getting more savvy, as they understand that a data centre REIT will continue to offer certainty in terms of forward growth drivers.
The sector used to be shrouded in secrecy, with little public information available, but today’s investors are far more educated on how a data centre business works, he added.
This translates to the more pointed and technical questions he receives at investor engagements, such as the kinds of contracts signed with tenants and how the utility costs are passed to them.
As a result, investors now have a clearer picture of Keppel DC REIT’s business model and its ability to deliver “outsized reversionary growth” compared with its peers, Loh said.
“It’s no longer just about an energy-intensive square box with no logo because it’s so secretive and security is so tight… They are asking more bespoke questions now.”
