According to CBRE, demand for data centers in Japan will experience major near-term growth, driven by the growing adoption of cloud computing.
The Data Center: Bringing Cloud Back to Earth Report, published today by CBRE Research, estimates that demand for data centers in Japan will continue to gain traction as an alternative investment, as real estate investors look to diversify portfolios.
The report provides new insights into data center business models in Japan and the primary factors to consider when evaluating data centers as a real estate investment class.
Data centers are facilities that allow computers to be securely housed and operated with 365 day, 24 hour consistency. According to CBRE's report, other major findings include:
From an investment perspective, cap rate for data centers is estimated to be 5.5% to 7.5%. It will likely attract investors seeking higher yield under the current environment where expected NOI yields have declined to record lows below 5% for traditional asset types.
Demand for data centers in Japan is expected to see major growth, driven by the growing adoption of cloud computing. In addition to growth in the new demand, there is also likely to be demand from customers switching from obsolete data centers.
Japanese major data center service providers have started to say that it is now difficult for them to continue investing in the real estate part of their data centers because of the high construction cost in Japan. It could become more common for land and buildings to be spun off into separate operations.
Asian outbound capital deployment remains robust amid a recent slowdown of Chinese outbound real estate investment. In the first half of 2018, outbound investment activity totaled $25.3 billion, led by Singaporean capital.
Based on new CBRE Research released this week entitled, The Tech Evolution is Ushering in Shared Logistics, the increasing use of automation is real and impacting Japan's logistics sector in a significant way.
According to CBRE, Tokyo, New York and Los Angeles are the world's largest commercial real estate investment markets, with the global stock of investable commercial real estate assets standing at $27.5 trillion.