Japan’s favourable business, financial, and legal infrastructure continue to attract logistics and data centre investment, with a falling yen spurring more deals in Asia’s second largest economy, ESR group co-founder and co-CEO Stuart Gibson told Mingtiandi’s 2024 Tokyo Forum on Tuesday. Watch the full recording>>
In a spotlight interview session at the Yardi-sponsored forum, the executive pointed to Japan as one of the few markets in Asia Pacific to feature strong consumer demand, rule of law, mature capital markets, and freehold land ownership, with those investment fundamentals boosted in recent years by a cheap yen.
“If you look at a Venn diagram for the investment fundamentals for your decision making, you get freehold land ownership, that’s big,” Gibson said. “You’ve also got high consumer demand. On top of that, you’ve got laws that are easily understood, you’ve got rule of law, you’ve got mature capital markets. So if you put the Venn diagram together, there are probably two or three markets in Asia that fit into the overlapping circles of the diagram, and Japan is definitely up there. But I’ll just say more recently it’s probably being driven by the cheap yen.”
HKEX-listed ESR, which is backed by US private equity giant Warburg Pincus, will continue to invest in Japanese data centre projects while also expanding its infrastructure business in the country, Gibson said. Japan and South Korea accounted for 18 percent of the company’s $80 billion in fee-related assets under management as of 30 June.
Data Centres in Focus
Gibson’s comments come as ESR has highlighted its data centre platform as a key propellant of the group’s next growth phase, with the executive anticipating a deeper presence in both data centres and infrastructure in Japan.
ESR Group Co-founder and Co-CEO Stuart Gibson
“We’ll go deeper in our current markets, we’ll go deeper and deeper into Japan,” Gibson said. “We’ll do more data centres and also more infrastructure…we just started a new infrastructure business where we just took on a senior guy from Macquarie.”
ESR in August completed the 25-megawatt first phase of its flagship 130MW Cosmosquare OS1 data centre project in Osaka, with that milestone coming after the developer and fund manager in May announced the groundbreaking of its fourth data centre project in Japan, a 60MW facility in eastern Tokyo’s Koto ward, boosting its pipeline of projects in the country to 320MW.
Data centres represented 34 percent of ESR’s development starts in the first half of 2024, with the group’s two-gigawatt APAC pipeline comprising 18 AI-ready projects across Japan, Australia, India, Malaysia and elsewhere. Gibson pointed to data centres as a natural complement to logistics facilities amid growing digitalisation and e-commerce.
“It’s a fantastic adjacency when you become Amazon’s biggest landlord in APAC,” Gibson said. “In China, you’re probably JD.com and Alibaba’s biggest landlord. They are primarily in the new economy business, their business is delivering stuff to consumers. But another part of the supply chain of that new economy is the digitalisation of that transaction. So when you’re taking care of the physical products for Amazon and Alibaba and JD, it just seemed a natural transition for us to take care of the digital part of the transaction.”
Outside of digital infrastructure, ESR’s Japan Income Fund (JIF) acquired a warehouse in Nagoya’s western suburbs last year from ESR Japan Logistics Fund III (RJLP3). JIF was launched in 2021 and reached a first closing of $750 million in equity from investors including France’s AXA Investment Managers and Singapore sovereign wealth fund GIC.
Investor Diversification
Gibson, who has over 27 years of real estate development and investment experience in Asia including 15 years in Japan’s industrial real estate sector, pointed to ESR’s brand and track record as critical to securing investors, with the company seeking to diversify its investor base by offering new products across the risk spectrum.
“As a real asset manager, we just have to always be innovative and come up with new products that suit the demands of our investors, so that we can keep our current investors and entice new investors as well,” Gibson said. He added that, “There’s a track record, so people can see that. You have to come up with new products because you’re trying to continually bring in new investors. It’s never a good policy just to rely on the same three or four mega investors.”
Looking forward to the new year, Gibson expects capital raising to pick up in the Middle East, as the region’s investors take a growing interest in Asian opportunities.
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