Jabez Tan on Japanese Data Centre Market

  • February 24, 2020

Source: Data Economy

Exclusive. Tokyo And Osaka Colocation Market To Grow By 20.4% In 2020 Amid $2.17bn 2019 Combined RevenueThe Tokyo and Osaka data centre markets continue to grow at a steady pace, as a new report calculates that the

Tokyo market was worth $1.786bn in 2019 and is projected to grow by 7.4% y/y to $1.918b in 2020.

The data centre colocation, hyperscale cloud and interconnection report by Structure Research unveiled that while Toyko’s colocation revenue generated roughly $1.8bn in 2019, Osaka’s colocation revenue generated roughly $375m in 2019, and is projected to grow 13% y/y in 2020.

Hyperscale cloud is juicing the demand pipeline and the hyperscale-oriented portion of the market, currently right at about 25% in Tokyo, is expected to hit nearly 33% between 2021 and 2022, according to the report.

“This was previously a market slanted to the retail colocation side, but things have quickly changed, and hyperscale is the primary driving force,” said the researchers, Jabez Tan, Head of Research and Philbert Shih, Managing Director at Structure Research, in a written summary in the report.

“On the ground, Tokyo is experiencing supply constraints due to strict regulations around major infrastructure construction surrounding the upcoming 2020 Olympics.

“This adds an extra layer of difficulty in a market where there are labour shortages and land can be difficult to procure.”

Tan told Data Economy that: “The Tokyo region experiencing supply constraint, and many of the new data centre builds that have been announced won’t be able to come on line till 2023. There will not be a tone of available capacity until 2023.

“In the next seven to ten years, when comparing how much capacity there is in Japan compared to other metros like London, you will see there is a positive demand profile.

“By that time, Osaka will still be behind Tokyo despite there being more land because all eyes are on Tokyo.”

Regarding pricing trends, the report highlighted that the hyperscale platforms are driving wholesale colocation prices down to similar levels seen in Singapore, Hong Kong and Sydney/Melbourne.

This is reflected in the low-end pricing distribution in both Tokyo and Osaka. The high end of the retail colocation pricing data in Tokyo reflects the premium price points that are attributed to deployments within carrier hotels such as Equinix’s TY2 data centre and other network dense data centres in the Otemachi district (Central Tokyo), according to Structure Research.

Retail colocation pricing levels are relatively similar across the Tokyo and Osaka markets with Tokyo being slightly more expensive on a per kW basis.

In Japan, hyperscale clouds are actively building their own data centres in partnership with land developers, which has impacted the addressable market for third party operators and introduced new players – often with a real estate background – into the environment.

This has, however, created opportunity for operators that have the requisite inventory and resources to build, as the researchers stated that it is no coincidence that the vast majority of data centre builds in the pipeline are focused on the hyperscale opportunity.

“By the middle of the decade, the percentage of the colocation market that is driven by hyperscale is expected to be well over 40%,” said the pair in the report.

“Everything stems from hyperscale cloud and it is no longer just about pure colocation supply and demand. Tenants and where they are located are crucial and the connectivity hubs have grown in strategic importance.”

Structure Research calculated data centre capacity as the currently built out square footage dedicated and available for the deployment of revenue-generating colocation racks or cabinets.

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