ESR’s Amagasaki Distribution Centre near Osaka might need to make room for some server racks
One of Asia’s best-known logistics developers is planning to start filling sheds with servers as Hong Kong-listed ESR on Thursday announced the acquisition of an Osaka data centre asset as part of a planned $2.15 billion project.
“As a leading provider of new economy infrastructure, it’s a natural move for ESR to expand into the evolving ecosystem of data centres,” said ESR co-founders and co-CEOs Jeffrey Shen and Stuart Gibson. “We are tremendously excited to launch our first data centre new development, creating a campus-style asset with expansion capability in a prime location of a high-growth market.”
In a statement, ESR contended that the COVID-19 pandemic has flipped the norms under which businesses operate and the ways people live and spend, with the resulting rise in e-commerce boosting demand for server facilities at the same time that it ramps up warehouse use.
The company said the depth of its presence across Asia Pacific provides it with advantages in land origination, zoning and power approvals, and development expertise.
Saying that it “plans to expand its data centre platform with select capital partners”, ESR also pointed to its ability to allocate parcels from its land bank to warehousing and data centres based on market demand and its expertise in development and fund management as enabling it to take advantage of lucrative opportunities for both operators and investors in data centre projects.
“ESR has a proven track record of consistently developing best-in-class assets and delivering top-notch project management for our logistics tenants, many of whom are e-commerce giants who also provide cloud services,” Shen and Gibson said. “Our operational expertise enables us to provide one-stop solutions to cloud service providers and operators across all major economies in APAC, meeting their needs and requirements beyond optimising business performance and growth.”
Regional Expansion Drive
For its initial foray into server sheds, ESR is acquiring an existing facility together with associated land for development, which has the potential to yield a project with a total capacity of 78MW when complete, the company said in a release. The logistics developer and fund manager plans to use the available land to construct two additional buildings with a combined capacity of 39MW, to be available within 12 months.
Stuart Gibson of ESR
The existing data centre, meanwhile, is expected to be redeveloped into 39MW of capacity upon expiry of the current lease. The identity of the vendor and the sale price of the asset were undisclosed as of Thursday.
The data centre campus is located within 10 kilometres (6.2 miles) of the Osaka CBD, where various network exchanges attract cloud on-ramps, telecom firms, IT-dependent enterprises and an increasing number of hyperscalers, ESR said.
The company noted that Osaka is the fifth-largest data centre market in Asia Pacific (outside of China), yet the supply of data centres in the area remains limited by shortages of land and power.
ESR said the Osaka acquisition is part of a broader data centre initiative under which the firm has already acquired land rights and power approvals sufficient to develop over 200MW of server capacity across major Asia Pacific markets.
Global property consultancy JLL, which advised on the transaction, hailed Japan’s rapidly developing data centre industry and sizeable addressable market.
“This landmark transaction reinforces the attractiveness of the Osaka market and we congratulate both the vendor and ESR on completing this unique deal,” said Bob Tan, JLL’s senior director for capital market alternatives in Asia Pacific.
Fertile Ground
In a report released last month, Dutch design consultancy Arcadis named Japan as the third most attractive place to build data centres among all global markets, trailing only the US and Singapore.
Arcadis said Japan earned a perfect score in mobile broadband penetration, underlining the need to manage the country’s high level of data consumption. But an ageing population, high energy costs and disaster-prone geography remain key risks in the island nation.
As ESR gets its first data centre project underway in Japan it will find global competitors already expanding to suit the needs of many of the internet giants that lease ESR warehouses.
Just under one month ago, US-based Equinix opened TY12x, its first hyperscale facility in Asia, on a site in Chiba prefecture just north of Tokyo.
ESR’s frequent partner in Japan, AXA Investment Managers added its first data centre in Japan last December when it paid about JPY 22 billion ($210 million) to acquire the Tokyo-area facility.
The hybrid fund manager and developer has found fertile ground for industrial development in Japan over the years. In its traditional line of work, the warehouse specialist teamed up with frequent partner AXA Investment Managers of France to begin construction earlier this year of a four-storey, 155,000 square metre (1.7 million square foot) logistics facility near Nagoya.
The ESR-AXA project came two years after the two companies announced that they had formed a Japanese core logistics joint venture together with an unnamed sovereign wealth fund. The JV immediately took over an existing ESR portfolio of six Japanese logistics assets for over JPY 100 billion ($910 million).
In its largest single-asset acquisition, the joint venture in August 2020 bought a logistics facility near Tokyo for JPY 39 billion, just seven months after e-commerce titan Amazon had leased nearly half the property.
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