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Investors turn to data centres in Gulf and Mena tech push

Shutterstock/Gorodenkoff
Analysts expect data centres to become an attractive real estate class in their own right
  • Growing need for data processing and storage
  • Egypt, Saudi and UAE capacity should double by 2025
  • UAE alone could create $181bn with cloud tech

Investor appetite for data centres in the Middle East is soaring as the region, particularly the Gulf, accelerates its digital transformation.

Experts say they are seeing increased levels of investment and interest from international operators, who are looking to capitalise on the region’s growing need for data processing and storage.

Earlier this year the Saudi Public Investment Fund invested in a partnership with US asset manager DigitalBridge Group to develop data centres in Saudi Arabia and across the GCC.

Tech giant Microsoft also plans to invest in a new cloud data centre region in the kingdom, promising “high availability and additional tolerance to data centre failures”. This follows its opening a cloud hyper-centre in Qatar last year, estimated to help create 36,000 jobs over the next five years. 

Khazna Data Centers, the largest network in the Mena region, has revealed $250 million plans for Egypt’s first hyper-scale data centre at the Maadi Technology Park, the country’s first specialised investment zone.

Oman’s Ministry of Transport, Communications, and Information Technology, meanwhile, is teaming up with technology company SAP to develop the country’s first private cloud data centre.

Expanded capacity

Data centre capacity in Egypt, Saudi Arabia and the UAE is forecast to more than double over the next two years, with improved data protection laws and subsea cable connectivity driving activity.

Analysts at CBRE say the data centre capacity of these three markets is estimated to total around 336 MW but is expected to grow to 707 MW by 2025. Saudi Arabia and the UAE are expected to add the bulk of the additional capacity. 

This forecast growth will mean that from a real estate perspective, data centres will become a core asset class in the alternative real estate market sector in all three countries, led by joint venture partnerships.

Taimur Khan, head of research – Mena at CBRE, says he expects a more supportive set of regulatory environments to develop in these markets. 

“This will help further drive interest from international operators and also from developers. In the long run this will grow the sector’s real estate asset pool, where it will become a notable asset class globally.”

Data centres gulfShutterstock/Gorodenkoff
Data centres will become a core asset class in the region’s alternative real estate market sector
Adopting the cloud

A report commissioned by Amazon Web Services suggests the UAE alone could drive $181 billion in additional economic value over the next decade by accelerating cloud adoption.

California company Equinix Inc invested $60 million on its third International Business Exchange data centre in Dubai in May. It said then that the facility will “unlock opportunities” for businesses while furthering the UAE’s position as a global hub for the digital economy.

Last year, Khazna Data Centers partnered with Beeah Digital to build a new facility in Sharjah. It is also exploring opportunities in Saudi Arabia, Kuwait and Indonesia.

Telecom operators are also stepping into the data centre space. Dubai-based operator Du has opened two of its own facilities and e& (formerly Etisalat) has teamed up with artificial intelligence company G42 to create the UAE’s largest data centre network under Khazna.

Analysts at BMI, formerly Fitch Solutions, say in a research note that they have amended their five-year forecasts for the UAE’s IT market to reflect a rise in high-profile investments.

They now expect total spending to reach AED56 billion ($15 billion) by 2027, up from AED35 billion last year. 

Cloud spending, which is derived from spending on hardware, software and services, will reach nearly AED19 billion in the same period. That’s a jump of more than AED10 billion compared with 2022, the analysts add. 

BMI forecasts that the UAE is set to outperform Saudi Arabia on cloud spending. The latter’s larger and more mature market means it remains the biggest market in Mena, backed by an uptick in imports of server equipment into the kingdom.

Growth of AI

Then there is artificial intelligence (AI). According to International Data Corporation, spending on AI in the Middle East and Africa, including Israel, will reach $3 billion in 2023. 

While this will account for just 2 percent of the global total for 2023 ($151.4 billion), the region will see the fastest growth rate worldwide over the coming years, reaching $6.4 billion by 2026.

“The rapid adoption of cloud and digital transformation in the region will result in AI being incorporated into many different products and solutions,” says Manish Ranjan, senior programme manager for software, cloud, and IT services at International Data Corporation Middle East and Africa. 

“AI growth in the region looks very promising. Businesses are increasingly investing to strengthen and expand their customer experiences, build digital capabilities and drive innovation,” he adds.

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