TOKYO -- The construction of large data centers is gathering speed in Japan, with Mitsui & Co. leading the private sector, after the government of Prime Minister Yoshihide Suga committed to backing the development of key 5G network infrastructure in hopes of turning the nation into Asia's hub for such services.
Demand for data centers is soaring, but the supply had been limited by the shortage of appropriate construction sites and high electricity costs. The government is now trying to expand supply by offering financial support and tax incentives, as it views the development of such infrastructure as a national security priority.
Mitsui & Co. is expected to invest a total of 300 billion yen ($2.7 billion) by 2026 in the development of new data centers and the acquisition of existing facilities. The trading house has joined forces with overseas investors to build three large facilities in three locations, including Kyoto and Chiba by 2026. The project is expected to cost 150 billion yen.
Mitsui will also partner with the Canada Pension Plan Investment Board to launch an investment fund focused on data center construction. The fund is expected to manage several hundreds of millions of dollars. A 50-50 joint venture will also be formed between the new fund and Fidelity Investments. The joint venture will be operated by Colt Data Center Services, a Fidelity subsidiary.
New data centers to be built by these funds are expected to have cloud service operators, gaming companies and other internet contents providers as customers.
Separately, Princeton Digital Group, a data center service provider based in Singapore, is planning to spend 110 billion yen for a new facility in Saitama, north of Tokyo.
Japan is underrepresented in terms of data center distribution. Only 6% of the 597 large data centers in the world are located in Japan as of the fourth quarter of 2020, making the country a distant third after the U.S. and China, according to Synergy Research Group. The 597 number represents a doubling from five years ago.
Large data centers play a critical role in promoting the adoption of 5G communication services, including big data analysis. The amount of data moving between the major internet providers in Japan increased more than 50% from a year ago, according to a November 2020 survey conducted by the ministry of internal affairs.
Despite the emergence of faster internet services, such as 5G, users still experience a delay in communication with the data center, especially when it is far away. The quality of cloud data services tends to be poor unless the user is within a 35-kilometer radius of the data center, a Mitsui official said.
The lack of data centers in Japan could prompt some cloud service operators to rely on those overseas, thereby increasing the risk of important user information being lost or stolen.
At the end of 2020, data centers in Japan had a total floor space of 350,000 square meters, according to IDC Japan. The research company expects floor space to increase to 1.24 million square meters, as companies such as Google and Microsoft aggressively expand.
Other private-sector players are also joining the fray. Last year, U.S. data center service operator Equinix announced a plan to build six new facilities, including in Tokyo. In 2017, Japanese trading house Mitsubishi set up a joint venture with Digital Realty Trust, a U.S. real estate investment trust, for the construction of data centers.
Japan's data center push was unveiled in an economic growth strategy in June calling for financial incentives to companies investing in the construction of new data centers, as the country hopes to attract operators from across the world. The scheme is aimed in part at allowing Japan to reduce the risks of leakage of important data to outside of the country.
Currently, data centers are concentrated in the metropolitan regions, such as Tokyo and Osaka. The government plan calls for broader distribution of data centers across the country.
The government plans to pick up to five locations for new data centers, based on accessibility to stable power supply and safety from flood risks.
The government will provide support for the development of sites and infrastructure around them. New data center operators will be expected to use the latest technologies designed to reduce power usage.