Hong Kong has ranked as one of the world’s top data centre markets thanks to its strong connectivity and low taxes, although it still trails regional rival Singapore, according to a report published by US real estate firm Cushman & Wakefield.

Hong Kong took fourth spot this year in the firm’s annual ranking of global cities’ data centre developments, up from the sixth spot last year, helped by strong fibre-optic cable density and quality, consistent demand for and availability of cloud services, and its business-friendly tax structure, the firm said. These advantages helped to offset high land prices.

Singapore, with a larger market size and even stronger fibre connectivity than Hong Kong, took third spot in the firm’s ranking. The two are the only cities outside the US that made the firm’s top 10 ranking. US locations Northern Virginia and Portland shared the top spot.

“Hong Kong is one of Asia’s leading and still-rising strategic locations for data centres, reflected in its move up in the overall global rankings to fourth place in the 2023 report,” said John Siu, Cushman and Wakefield’s managing director in Hong Kong.

While Beijing and Shanghai did not make it into the list’s top 10 data centre markets, the two cities are leaders in both market size and fibre connectivity, according to the firm.

Hong Kong has experienced a boom in demand for data centre providers driven by a surge in the digital economy during Covid-19.

Cushman & Wakefield also previously projected that the total gross floor area of Hong Kong’s data centres is expected to expand by 30 per cent by 2025, and that the value of Asia-Pacific’s data centre industry will hit US$28 billion by 2024.

But Hong Kong also faces unique challenges to maintain its status as a leading data centre market. An increasingly complicated web of data security rules proposed by Beijing could erode Hong Kong’s status as a hub, analysts previously told the Post.

New regulations passed by the Cyberspace Administration of China (CAC) last year, for instance, require companies that meet certain criteria to pass a security assessment before transferring data outside the border, meaning that data flows to Hong Kong could potentially come under scrutiny.

Outdated local data regulations including the Personal Data (Privacy) Ordinance, which came into effect in 1996 and has been barely updated since, could also complicate the flow of data between the two territories.