Japan is digitalising. It was once considered one of the most technologically capable nations on the planet, but the world’s attention has turned elsewhere since Japan’s heyday. However, things are changing: prime minister Yoshihide Suga’s new digital agency is due to launch this autumn, 5G is taking off and the private sector, too, is fast moving to the cloud.
As a result, the country’s data centre market is valued at US$7 billion as of this year, according to ReportLinker research, and it is on track to grow to $10 billion by 2026 – a near 50% gain.
Making its debut at just the right time, Princeton Digital Group (PDG) is the latest international player to commit to the country.
In June, PDG unveiled its flagship Saitama City campus, a 100MW hyperscale facility with an investment value of US$1 billion that is set to become one of Greater Tokyo’s largest hyperscale facilities.
As a pan-Asia investor-developer-operator, this is PDG’s fifth market entry since its inception four years ago – and, if the aim is to make a splash, this project is certainly one way to do it.
Set to be delivered across two 48.5MW phases, the campus is located 30km north of central Tokyo and is designed to serve leading hyperscalers.
“As the cloud companies invest in Japan, they need highly reliable and large-scale data centre capacity to serve their customers,” says Rangu Salgame, chairman, CEO and co-founder of Princeton Digital Group.
Japan is the third-largest economy in the world by GDP, but it has been slow to digitalise, particularly in government and public services. That, however, is rapidly changing.
“It is at a very nascent stage of explosive cloud growth for multiple reasons,” says Salgame.
“The enterprises in Japan are in very early stages of cloud adoption, and with the economy being so large and multi-sector we are going to see very large investments from cloud companies in Japan for capturing the growth that will occur over the coming years,” he adds.
Major metropolitan areas will be first in line. For example, Structure Research expects Greater Tokyo’s hyperscale colocation market will reach values of $1.6 billion by 2025, growing at a CAGR of 25.1%.
PDG’s proposition is that it is present in Asia’s five major economies: China, Indonesia, Singapore and – as of March 2021 – India. The Saitama City campus is part of a 600MW portfolio PDG is establishing across Asia.
“That is what the large cloud companies are now looking for. Their investment in Asia is increasing – not only for Japan but also for other parts of Asia, such as China, India and Indonesia. These are markets where cloud companies are making significant investment. As part of that strategic capex, they are looking more and more for operators who provide solutions across multiple countries,” Salgame observes.
Prime market costs
Land and power for the campus are already secured, with construction due to begin later this year. However, growing demand means growing prices; as a result, Tokyo is the second-most expensive location to build a data centre globally.
Data published by Turner & Townsend last year concluded this is a result of busy market conditions, the additional cost of mitigating seismic risk, plus labour and material shortages, which “all contribute to an elevated cost of $10/W”.
“Every market has its own unique characteristics when it comes to development projects, whether it’s land acquisition, power approvals or fibre connectivity, and each of the countries we are in is different,” says Salgame, who praises Japan’s ease of doing business.
Saitama City offers connectivity and proximity to Tokyo’s central business district, with strong fibre links as well as connectivity between data centres.
Although Salgame doesn’t see the impending boom in activity causing a dramatic increase in land prices, the availability of power is now influencing site selection.
“Certain parts of Tokyo have capped out in potential power development, for example, because the upstream production of power has capped out, while certain other regions have potential. That’s why we looked at a location like Saitama City to get 100MW of IT load, which is incoming power – which is higher, so we have secured that and it has been unique in terms of what we have been able to pull off in Tokyo,” he says.
PDG is also pursuing its own sustainability targets by working with local utility companies “to find better ways to procure power”.
Salgame explains: “That is becoming an extremely important factor in data centres and we are taking a leadership role in working through ways we can acquire green power. That will increase our ability to secure more power while meeting our customers’ expectations that facilities will be greener and greener.”
Further details will be shared over the coming months, Salgame says, but he does add that now incoming power has been secured, PDG can buy green power in the local market.
A similar approach has been taken in its other locations. Last year in Indonesia, the state-owned utility provider PLN started to issue tradable renewable energy certificates (REC), which companies can buy to offset their carbon footprint and support clean energy programmes. PDG was the first corporate in Indonesia to acquire the REC.
Salgame says: “It gives us the potential to maximise our acquisition of green power in Jakarta more than other players.”
In Japan, renewables take a different approach, with the country turning to wind and nuclear ahead of solar. In July, the government revised its energy-mix targets to almost double the total grid contribution from renewables to 2030 – from 18% to 36-38% by the deadline.
Coal will shrink from 26% to 19% of the total mix, and gas from 56% to 41%. New fuels such as hydrogen and ammonia will account for about 1%, with nuclear unchanged at 20-22%.
These cuts will help Japan achieve its higher targets for the reduction of carbon emissions. Previously aiming for a cut of 25% on 2013 levels, the country’s aim is now for a 46% reduction by 2030.
However, given the energy-intensive nature of data centres, they will no doubt have their own part to play in the national effort.
Salgame says: “Japan has certain kinds of renewables that are more prevalent, while in other markets they could be other kinds. For example, in India, certain parts have a lot of solar, while others use more wind. So, we work locally with utilities suppliers to procure power that is more available in that market and the same will happen in Tokyo and other markets we work in.”
Beyond Tokyo
Once established in a new market, PDG’s tried and tested strategy is to expand in-country and Japan will follow the same path. Salgame says: “We expect to add more data centres whenever we get to acquire good land and make good acquisitions, and it will be in Tokyo and in other parts of Japan as well.”
That strategy will see immediate focus fall on building strength in the five established markets.
“We will do a lot more in each of them,” Salgame adds. “Then we continue to look at other markets, whether it’s Korea, the Philippines, Australia.”
For now, it’s all eyes on Tokyo, as the market evolves and PDG plants its flag in the soil.
As of May 2021, ReportLinker counted more than 20 third-party data centre service providers operating more than 90 facilities. Japan also has several on-premise facilities owned by local enterprises.
“You have a couple of US players who are in Asia, then you have operators in countries who are home-grown entrepreneurs and single-country operators, home-grown telcos, and so on. We fill the gap of the pan-Asia operator. There is no winner-takes-all in any city, location or country,” Salgame says.
Observing that each market requires “at least three credible operators”, his outlook is that over the next two to three years these will begin to emerge in Greater Tokyo, with each operating multiple sites.
The competition is certainly heating up. Last year, Equinix and GIC announced xSCale, while Colt, AirTrunk and Lendlease have also ramped up activity. In addition to the cities of Saitama, Inzai and Osaka are also seeing an uptick in interest.
On the outlook, Salgame says: “There will always be a number of operators but the top three will become a very credible set of players for hyperscale customers. In terms of those three emerging, I think the landscape is wide open. It is a market that is still at the very early stages of high growth potential.”
