What to expect from Japan’s data centre market | Real Estate Asia
, Japan

What to expect from Japan’s data centre market

Hyperscale developments are expected to materialise.

According to a recent Savills report, the pandemic has expedited demand for digital infrastructure in Japan, which has served as a catalyst for economic growth and investment, with foreign direct investment into communications having seen significant increments over the past few years to more than JPY300 billion in 2022. 

With the notable recent growth of Japan’s e-commerce sector, Savills said the government’s increasing focus on domestic semiconductor manufacturing, and the heightened need for digital security, a paradigm shift is occurring, which has brought data centres into the spotlight as a base for digital infrastructure going forward. 

Here’s more from Savills:

As a result, their presence has expanded notably in recent years, and, in physical terms, the number of server racks is expected to double from around 138,000 in 2023 to 272,000 in 2027. Although historically dominated by domestic IT companies, the market is seeing many international investors making significant progress which appears to be the source of most upcoming growth. 

Hyperscale data centres are typically owned and run by major operators, and often have more than 5,000 servers with capacities upward of 20MW. Many such facilities are located on the outskirts of major urban areas and are situated in clusters due to the large amount of land and energy required. 

Meanwhile, smaller local data centres tend to be located in closer proximity to central business districts, and many older facilities are housing outdated, company-tailored IT systems that have become more difficult to maintain. In recent years, many companies appear to be migrating to cloud-based solutions that hyperscale data centres provide. 

That said, local data centres situated closer to central areas remain in demand. Firstly, some companies like to maintain their IT systems in a hybrid fashion, using both cloud services, as well as some form of in-house storage, which could be either in-office or colocation space.

Colocation data centres close to central areas have an advantage as they can provide relatively easier physical access compared to those situated further afield. As such, local data centres near business districts have gained some traction among investors. 

The conversion of office buildings to local colocation data centres where possible appears to also be a viable strategy, considering that leases for data centres will be longer and can generally generate greater net operating income than a similar office building would, due to the specialised nature and scarcity of such properties.

A notable example of this approach would be the Gotenyama building located in Shinagawa, Tokyo, which Sekisui House REIT decided to sell to TIS for JPY70.0 billion in March 2023 at an appraised direct cap rate of 3.3%. While it is officially designated as an office building, the buyer TIS has used the building as a data centre during its tenancy. 

Overall, the data centre market in Japan is growing rapidly and is expected to see considerable growth in the coming years, with many large hyperscale developments in the pipeline, particularly in the Greater Tokyo and Greater Osaka areas. That said, there are multiple constraints that will likely hinder this, including the scarcity of suitable land for data centre development, and the time taken to attain the requisite power supply. 

While more investors are likely paying closer attention to the local data centre market, which is comparatively easier to break into, both the hyperscale and local data centre markets are expected to see considerable growth going forward.

 

Join Real Estate Asia community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!

Exclusives

How Metland Indonesia deals with weaker residential purchasing power
The real estate firm continues to expand with residences that are attractive to consumers because of pricing, the ‘growing house’ concept, and sustainable features.