Japan DCI Report 2020: Data Centre Colocation, Hyperscale Cloud & Interconnection

Executive Summary

The Tokyo and Osaka data centre markets continue to grow at a steady pace. The Tokyo market was worth USD $1.786b in 2019 and projected to grow 7.4% y/y to USD $1.918b in 2020. This was previously a market slanted to the retail colocation side, but things have quickly changed, and hyperscale is the primary driving force. 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.

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. The power grid is also taking on a lot of strain with pre-Olympic construction in full swing.

As a result, the competitive landscape has become increasingly diverse. In Japan, hyperscale clouds are actively building their own data centres in partnership with land developers. This has impacted the addressable market for third party operators and introduced new players – often with a real estate background – into the environment. But at the same time, it has created opportunity for operators that have the requisite inventory and resources to build. It is no coincidence then, that the vast majority of data centre builds in the pipeline are focused on the hyperscale opportunity.

This current situation, with a lack of supply and ongoing pent-up demand, is expected to push absorption rates up in the immediate years following the Olympics. And this will continue to shift the overall composition of the market. By the middle of the decade, the percentage of the colocation market that is driven by hyperscale is expected to be well over 40%.

This report has been re-named (DCI: Data Centre Interconnection) and tracks a number of new data points to account for the shifts in the emerging new landscape. 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. In this and future versions, hyperscale cloud nodes and the on-ramp locations are mapped out. On top of this, the hyperscale component of supply and absorption is clearly identified, tracked and projected, while build pipelines are laid out. And we continue to track supply and demand on a space, rack and power basis – providing multiple views of the market adjusted for context.

This report is an excellent resource for any service provider, investor or enterprise end user looking to understand and project the data centre and interconnection market in Tokyo and Osaka or find a service provider.