Data centers have emerged as critical infrastructure underpinning the modern digital economy, driven by the proliferation of compute-intensive technologies such as cloud computing, AI, IoT. Once confined to niche areas of the tech sector, data centers are rapidly gaining prominence as a strategic national asset and a key focus within capital markets.

With growing importance and heightened market expectations, data center development is becoming increasingly complex. Power infrastructure, site selection, and procurement of mechanical, electrical, and plumbing (MEP) systems are deeply interdependent considerations, making data center development far more than a traditional real estate play. A strategic, long-term approach is essential.

In Korea, any effort to develop data centers today must go beyond simply meeting rising demand. A successful strategy must also account for evolving market structures and the accelerating pace of technological change.

How Data Centers Operate and Are Utilized

Data centers are physical spaces where data is stored, processed, and used for high-performance computing tasks such as AI training. At the same time, they serve as virtualized infrastructure environments where large volumes of data move in real-time across networks, supported by systems that ensure operational stability and robust cybersecurity to prevent data breaches.

These facilities and their connected networks are typically offered to users on a subscription or pay-as-you-go basis. Beyond the core infrastructure, users can customize their environments with a wide range of optional services—such as computing resources, security solutions, data backup, and network enhancements. Depending on their business model and technical requirements, users can flexibly configure and scale their data center use, ensuring optimal performance for their specific needs.

As such, data center operators must serve as reliable and agile infrastructure partners capable of responding to increasingly complex technical demands. To meet these demands, operators must place strong emphasis on data integrity and security while continuously monitoring, optimizing, and upgrading both physical facilities and operational systems.

Current Landscape and Challenges of the Korean Data Center Market

Entry of Global Cloud Service Providers

Global cloud service providers such as AWS, Microsoft Azure, and Google Cloud are actively expanding into the Korean market, offering a wide range of services. Their presence drives structural transformation and technological advancement across the domestic data center industry.

This trend has broadened a market previously dominated by telecom operators and accelerated the business model transformation and market participation of local managed service providers (MSPs). As a result, demand for hyperscale data centers is rapidly growing, intensifying competition across the sector.

At the same time, the rise of data-intensive services—including AI, autonomous driving, real-time content delivery, and IoT—across multiple industries is accelerating the pace of digital transformation (DX). These shifts are ongoing, and the Korean data center market continues to evolve in terms of technology, demand, and industrial structure.

Concentration in the Seoul Metropolitan Area and the Need for Geographic Diversification

Currently, most data centers in Korea are concentrated in the Seoul metropolitan area. This concentration is primarily driven by the aggregation of critical infrastructure—such as reliable power supply, advanced telecommunications, and a skilled workforce—as well as the proximity to high-demand users like large corporations, IT firms, financial institutions, and gaming companies. In latency-sensitive industries like finance and gaming, geographic proximity to users and business hubs remains a key factor.

However, this concentration has created structural challenges, including imbalances in power supply and increasing pressure on network infrastructure. In response, the government is gradually implementing policies to encourage the geographic diversification of data center development, particularly toward non-capital regions with more stable energy resources.

As demand becomes more diversified and supply flexibility improves, we expect data center development to expand beyond Seoul to major cities like Busan. This shift is more than a simple geographic relocation—it has the potential to support long-term regional economic balance and broader infrastructure development across the country.

Rising Power Demand and Energy Strategy Challenges

With the increase in real estate development projects dedicated to data centers in recent years, mid- to long-term electricity demand is expected to grow steadily alongside the expansion of supply.

According to the International Energy Agency’s (IEA) Electricity 2024 report, global data center electricity consumption is projected to double from approximately 460 TWh in 2022 to up to 1,100 TWh by 2026. In the United States, annual consumption rose from about 76 TWh in 2017 to 176 TWh in 2023. Additionally, AI-related workloads account for roughly 10% of total data center energy use—a share expected to reach around 20% by 2030.

Unlike conventional infrastructure, data centers typically operate with low initial utilization rates, ramping up capacity over time. As a result, the launch of new centers does not immediately impose significant strain on the power grid. However, the cumulative increase in overall capacity may lead to a structural rise in electricity demand over the long term. Therefore, both government and private sectors are actively exploring strategies to mitigate pressure on power infrastructure.

In this context, energy management strategies prioritizing grid stability and environmental sustainability are becoming increasingly important. Efficient technologies—such as waste heat recovery—and the accelerated adoption of renewable energy sources are emerging as key challenges and priorities for the future of the data center industry.

Strategic Response to Future Demand

Regional Expansion of CSP Regions and Clusters

Cloud service providers (CSPs) typically organize their data center infrastructure into defined zones known as "regions" or "clusters," depending on their operational strategies. These configurations emphasize interconnectivity and reliability, and each region typically includes multiple data centers. As the number of data centers within each region grows, so does these clusters' geographic footprint.

While most clusters are currently concentrated in the Seoul metropolitan area, there is growing potential for gradual regional expansion, driven by power supply availability, network scalability, and development feasibility. This shift is not simply a matter of geographic relocation—it could reshape the overall supply structure of Korea's data center industry depending on each CSP's regional strategy and expansion pace.

Compared to the capital area, regional cities offer advantages such as more abundant power resources, lower land costs, and strong local government support. As a result, regional sites are increasingly being considered for medium- to large-scale data centers capable of both computation and traffic handling. In particular, Busan is gaining attention as a strategic hub for managing international traffic, thanks to its linkage to global subsea cable networks.

MEP Procurement Risk and Operational Execution Capacity

MEP systems account for a relatively large portion of total development costs in data center projects compared to other infrastructure assets. High-specification MEP equipment is essential to ensure operational stability and tailored performance, much of which is sourced globally from various manufacturers and production hubs.

This dependency on global supply chains exposes projects to risks tied to financial markets, geopolitical dynamics, logistics disruptions, and other external variables. As a result, MEP prices tend to be volatile, and delivery delays can impact the construction timeline and installation schedule.

To mitigate these risks, developers must anticipate schedule delays and procurement volatility. It is crucial to build strategic operational frameworks that allow for flexibility in equipment sourcing and construction planning, ensuring execution capability over the medium to long term.

Technology Advancement and Its Demand-Expanding Effect

Technology and equipment used in data centers continue to advance, particularly in computational efficiency and energy optimization. Some observers suggest that such advancements could reduce the physical footprint required for data centers over time, as higher-performing systems may offer the same capabilities with less space and fewer resources.

However, real-world industry trends indicate otherwise. As technological efficiency improves, service costs decline—enabling more industries and enterprises to adopt data-driven solutions. This increased accessibility leads to broader market participation and, in turn, accelerates overall demand growth.

This phenomenon is often explained by the "Rebound Effect" or "Jevons Paradox," where improvements in efficiency lead to increased total consumption rather than reductions. The data center industry is a clear example of this dynamic. Technological progress enhances the performance of existing infrastructure while simultaneously expanding the demand base—ultimately serving as a key driver of sustained data center growth.

Data Centers from a Development and Investment Perspective

As outlined above, the data center industry has steadily grown despite structural shifts, regulatory constraints, and technological uncertainty. Today, it has firmly established itself within the investment landscape as a distinct asset class under the broader umbrella of the "New Economy Sector." In recent years, data centers have rapidly emerged as a strategic investment target in capital markets, attracting increasing attention from institutional investors thanks to their strong growth potential and stable demand fundamentals.

I began engaging in data center development projects in 2019 amid this industry momentum. The first was the "Hanam IDC Development Project," located in Pungsan-dong, Hanam City, Gyeonggi Province. It was the first commercially driven co-location data center project in Korea to be initiated and led by investment market participants. Thanks to timely execution and close collaboration with excellent partners, the project was completed and has since served as a key benchmark for subsequent developments.

As with all real estate and infrastructure projects, data center development typically requires a long lead time—from initial planning to market delivery, the timeline can range from three to over five years. Data centers serve as foundational infrastructure for a wide range of industries, and the pace of technological advancement and shifting market needs is exceptionally fast. If developers fail to respond flexibly and promptly to these changes during the development process, there is a significant risk that the final product may misalign with actual market demand. Therefore, developers and investors must adopt a long-term view, design flexible business structures, and continuously monitor and adapt to market and technological trends throughout the entire lifecycle of a project.

As critical infrastructure in the digital age, the role and importance of data centers continue to grow. While challenges remain—including geographic concentration in the capital region, rising power demand, and the increasing presence of global cloud players—the industry has continuously evolved by seeking and implementing solutions. The financial and investment sectors will play an increasingly vital role as providers of capital and strategic direction in this evolution. We hope that the stable supply and sustainable growth of data centers will not only strengthen Korea's digital infrastructure but also serve as a firm foundation for enhancing the competitiveness of the broader economy.

Written by | Changui Hong, Director of DC Business Division, IGIS Asset Management

Edited by | Soyeong Park, Brand Content Editor

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