Mapletree Industrial Trust Expanding Japan Data Centre Footprint with $101M Tokyo Buy

Mapletree Industrial Trust (MIT) has agreed to acquire a West Tokyo facility for redevelopment into a new data centre, with the SGX-listed REIT’s purchase coming as investors have poured $5.5 billion into Japanese data centre assets so far this year, more than quintupling last year’s volume, according to data from MSCI.

MIT and its sponsor, Temasek Holdings-backed Mapletree Investments, will acquire the freehold property for a total consideration of JPY 14.5 billion ($100.5 million), with MIT taking a 98.47 percent effective interest in the asset. The mixed-used facility is being purchased from Nagayama Tokutei Mokuteki Kaisha, an unrelated third-party vendor, the trust’s manager said in a release on Monday.

The property marks MIT’s second Japanese data centre investment following its acquisition of a 10-megawatt facility in Osaka last year. The trust’s manager pointed to the future redevelopment of the Tokyo facility as enhancing the REIT’s geographical and income diversification, with the completed project expected to benefit from favourable supply and demand dynamics in the city’s digital infrastructure sector.

“The addition of a freehold property will improve the portfolio’s geographical and income diversification,” said Lily Ler, chief executive of the trust’s manager. “Its strategic location in West Tokyo, a key data centre cluster in Greater Tokyo, will present a future redevelopment opportunity to a new data centre. The future redevelopment will benefit from the robust demand for data centres as well as tight supply and limited development opportunities in West Tokyo.”

Japan Diversification

Located within a network-dense data centre cluster in West Tokyo’s Tama area, the 319,300 square foot (29,664 square metre) multi-storey property comprises a data centre, a back office, training facilities, and an adjacent accommodation wing situated on a 91,200 square foot site.

MIT is acquiring the facility for JPY 45,412 per square foot, representing a 3.3 percent discount to the property’s independently appraised value of JPY 15 billion as of 31 July. The transaction is expected to complete in the fourth quarter.

The 1992-vintage property situated roughly 30 kilometres (19 miles) from Tokyo’s central business district is fully leased to an “established” Japanese conglomerate on a net lease structure for the next five years.

MIT expects the transaction to be immediately accretive to unitholders and will finance the acquisition with yen-denominated borrowings, which will provide a natural capital hedge, according to the trust’s manager.

Post-acquisition, MIT’s portfolio value will grow to S$9.1 billion from $9.0 billion as of 30 June, with the Tokyo and Osaka facilities collectively set to account for 6.4 percent of the trust’s total assets under management.

The purchase will also increase MIT’s data centre exposure to 55.9 percent of AUM, with the remaining portion comprising business park and industrial facilities. Outside of Japan, MIT’s portfolio value is roughly split evenly between Singapore, where the trust owns 83 properties, and North America, where the trust’s 56 assets include 13 data centres held through a joint venture with Mapletree Investments.

“Given its strategic location, the Property presents a future redevelopment opportunity to a new data centre. This is in line with MIT’s portfolio rejuvenation and rebalancing efforts towards reshaping and building a portfolio of assets for higher value uses,” MIT’s manager said.

Investors Pile In

MIT’s acquisition comes after the Greater Tokyo area in the second quarter recorded a 14 percent increase in operational data centres from a year earlier, according to an August report from Cushman & Wakefield.

With committed projects in the pipeline boosting the market’s capacity to 2.7GW from just over 1GW of live IT at the end of 2023, Greater Tokyo ranks second behind Beijing for Asia Pacific’s largest operational and planned resources, as cloud adoption, data consumption and investment in artificial intelligence boost demand for digital infrastructure.

Strong demand and limited new supply of data centre space have compressed vacancy in West Tokyo from 23 percent in 2018 to 9 percent in 2023, with that rate expected to tighten to 6 percent by 2033, according to statistics from DC Byte cited by MIT. West Tokyo currently accounts for some 40 percent of Greater Tokyo’s total live IT supply, according to the research firm.

Last month, Singapore-based Empyrion Digital made its maiden investment in Japan with the planned development of a 25MW data centre in central Tokyo as global and regional players crowd into the Japan market.

Also during September, ESR completed the 25MW first phase of its flagship data centre project in Osaka, with that milestone coming three months after the HKEX-listed industrial specialist announced plans to develop a 60MW Tokyo facility as its fourth digital infrastructure project in Japan.

In July, Singapore’s Keppel DC REIT secured its first Japanese asset with the acquisition of a western Tokyo data centre. That deal came just months after the trust’s sponsor, Keppel Ltd, inked a deal with Japanese real estate giant Mitsui Fudosan to explore data centre development and investment opportunities in Japan and Southeast Asia, including the proposed forward purchase of an under-development facility in western Tokyo that will mark Keppel’s first data centre project in Japan.