Will create a Data Center
which highly fits to an ESG investment
For a sustainable future for data centers and digital infrastructure
Data center investment in Japan is booming, and demand is expected to continue to grow. On the other hand, we are facing the warning about the enormous power consumption. In addition, most data centers are concentrated in Tokyo and Osaka, and it is still difficult to realize the national policy, i.e. "optimal arrangement of data centers in Japan". We Digital Infrastructure Lab are here to support a project to develop and utilize data centers and * digital infrastructure for the stakeholders auch as land owners, data center operators, developers, investors, energy operators, data center related equipment manufacturers, government, local governments.
* Not limited to data centers, it covers the fields of e-commerce logistics facilities, digital-related laboratories, base stations / communication networks, and renewable energy facilities.
To realize "ideal" digital infrastructure investment
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Expanding data center market, but facing challenges
With an increasing reliance on digital technology, the data center industry is experiencing impressive growth, is relatively immune to continued economic uncertainty, and is being viewed by investors and financial institutions as a strong alternative asset class. It’s getting attention.
Expansion of market size
According to a report published by Global Market Insights Inc., the global cloud data center market is estimated to be worth 20 billion USD in 2022, progressing at a CAGR (compound annual growth rate) of 10% from 2023 to 2032. It is projected to surpass the 70 billion USD valuation by 2032.
Efforts to promote the development of cloud computing technology are expected to be the main driver of market expansion. Projects powered by cloud computing offer integrated management, including automated problem resolution, end-to-end security management, and budgeting based on actual data usage.
Improving cloud computing infrastructure for e-administration practices has become a priority for governments of several countries, including India. These governments have also launched projects to expand their skill sets to advance digitization.
According to deployment models, the public cloud data center market will be valued at over 5 billion USD in 2022 and is expected to grow profitably through 2032.
Remarkable growth, even in Japan
Japanese telecommunications company Nippon Telegraph and Telephone (NTT) has announced plans to invest 8 trillion yen ($59 billion USD) in data centers, artificial intelligence and other “growth areas” over the next five years.
Of that, at least 1.5 trillion yen ($11 billion USD) will be spent on expanding and upgrading data centers, while at least 3 trillion yen ($22 billion USD) will be invested in digital businesses, including AI and robotics.
The company said the spending is expected to boost earnings before interest, taxes, depreciation and amortization for the fiscal year ending March 2028 by around 20% compared to the previous fiscal year, which amounts to about 4 trillion yen ($29.4 billion USD).
The Nikkei Shimbun reports that President Akira Shimada said at a press conference, “We will invest in growth areas and expand our cash-generating capabilities.”
Despite this market expansion and growth forecast, there are also challenges that weigh heavily on us.
Ukraine War, Labor Shortage and Challenges Weighing Down
Supply chain constraints, which have eased from the peak of the pandemic but have not fully resolved, are at risk of further flare-ups due to geopolitical tensions in Europe and the Asia-Pacific region.
For example, the war in Ukraine has limited the supply of neon, which is essential for semiconductor manufacturing. This supply pressure is causing delays in production. This is also due to a labor shortage, which is particularly serious in the data center field, where the problem of lack of skills and human resources is becoming more pronounced.
Employers are not only finding it difficult to find talent, they are also struggling to retain talent, with many reportedly being hired by their peers in a hot labor market. .
Another challenge hindering data center growth is the broader global economic problem. Data centers are among the top three asset classes expected to see the most growth in debt balances over the next 12-24 months, as they rely on debt to finance construction and acquisitions. Profit margins are shrinking as interest rates rise. Higher interest rates and economic instability could make it harder for businesses to make large deals.
Market expansion continues; expectations are high for initiatives in each country
Despite many challenges, the market size of the data center industry continues to expand. There is growing interest in the efforts of countries around the world to see how they can further expand while facing challenges.
Data center and CRE strategy
As competition in data center investment and development intensifies, DC operators, DC developers and investors involved in data center business (hereinafter referred to as “DC operators, etc.”) It is desirable to utilize the CRE strategy in order to optimize the earnings of the data center business while eliminating competition with other companies as much as possible.
■ What is the CRE strategy?
“CRE” is an abbreviation of “Corporate Real Estate,” which began to attract attention in the United States in the 1960s. It refers to real estate owned by a company, and in addition to real estate such as offices, factories, and warehouses necessary for conducting business, it also includes recreation facilities, company housing, welfare facilities, and idle land.
The CRE strategy is a medium- to long-term management strategy that aims to improve corporate value by effectively utilizing such real estate.
As a specific CRE strategy, we will review current offices, rent surplus offices to third parties, and utilize idle land to develop and construct real estate for various purposes to generate stable long-term rental income. secure, etc.
In 2008, the Ministry of Land, Infrastructure, Transport and Tourism issued the “Guidelines for Implementing CRE Strategy”, which triggered the CRE strategy to attract attention in Japan. The guideline defines the CRE strategy as “a way of thinking about maximizing the efficiency of real estate investment by reviewing corporate real estate from the perspective of management strategy from the perspective of ‘improving corporate value.'” I’m here. Although the data is a little dated, the scale of CRE in Japan is said to be 490 trillion yen*, which is expected to grow further when converted to current real estate prices.
Based on the 2006 Basic Land Survey.
■ CRE strategy past and present
Before the CRE strategy was clearly recognized, it seems that corporate real estate owners chose only schemes of (1) passive abandonment, (2) simple sale, and (3) simple lending (land or building). Part of the reason could be the lack of active use of balance sheet strategies within companies and the fact that corporate property owners are not real estate professionals.
The CRE strategy has gradually been recognized, and up to now, real estate companies (developers, etc.) and construction companies have been actively approaching corporate real estate. We have successfully commercialized a large number of businesses based on CRE strategies through proposals for effective utilization and proposals for joint ventures. It is also noteworthy that the enforcement of the Financial Instruments and Exchange Law (2007) facilitated the liquidation of real estate and the entry of investors into the market.
■ Role of CRE strategy in data center investment and development
By applying the CRE strategy to data center investment and development, DC operators can enjoy the following benefits.
Understanding the intentions of corporate property owners
In addition to knowing whether you want to sell the property, whether you want to rent it, whether you want to make effective use of it yourself, whether you want to do a joint business, etc., you can also grasp the timing, so you can communicate with the owner based on trust. increase.
Avoiding Opportunity Loss and Lost Profits
Compared to real estate for other purposes, it takes a considerable amount of time to conduct a preliminary survey to determine the suitability of a data center site. For example, when participating in a real estate auction, etc., it may not be possible to make a decision within the consideration period. In addition, there may be cases where real estate investment is executed while accepting the risk of unconfirmed items. On the other hand, based on the CRE strategy, the decision-making process of the parties involved will make it easier for DC operators to select properties suitable for data centers, thereby reducing investment risk.
Optimizing investment efficiency
Data center development requires not only land acquisition funds but also huge investment funds for buildings and equipment. By utilizing the CRE strategy, the timing of funding will be advanced through discussions among the parties concerned, making it possible to avoid the problem of inefficient investment funds associated with prior acquisitions. In addition, in the SPC formation scheme for joint investment, it is possible to carefully consider the financing method and loan terms and formulate the optimal financing strategy.
Alignment of Interests of Stakeholders and Exit Strategies
The development of a data center requires a huge amount of investment funds and a considerable period of time from the completion of the DC to its stable operation. By repeating discussions that match the expectations of each of the parties concerned, the CRE strategy realizes the separation of the development party, ownership and management, and enables the construction of a final exit strategy scenario.
As mentioned above, utilizing CRE strategy in data center investment and development can be considered a beneficial approach to maximize profitability while minimizing risk.
Data center facility inspection robots to be fully deployed from April 2023 (NTT DATA)
NTT DATA Co., Ltd. is working to remote/automate equipment inspection work using robots at the data center “NTT Shinagawa TWINS DATA Building” (hereinafter referred to as “Shinagawa Data Center”) operated by the company. announced that it has confirmed that it is possible to reduce the equipment inspection work that was previously done by about 50%.
From April 2023, NTT DATA will proceed with the introduction of robots to data centers nationwide.
Background of robot introduction
NTT DATA explained that the building management industry, including data centers, is facing a serious manpower shortage, and that facility management work, in particular, is facing a shortage of skilled workers, and that there is a need for labor savings and more efficient work implementation.
Among facility management operations, the company believes that inspection work is highly effective in reducing manpower and that remote/automated operations are feasible through the use of digital technology, and has been conducting verification for practical application at its Shinagawa Data Center.
Overview of Robot Introduction and Changing Checking Tasks
In this initiative, a robot automatically patrols a predetermined inspection route, taking pictures of meters, lamps, and facility exterior, and acquiring environmental data such as odors using sensors, thereby replacing the work of measuring meters, checking lamps, and checking for abnormalities in appearance and unusual odors that had previously been performed by humans.
In this method, a single camera or sensor can be used to inspect multiple locations, and there is no need to modify the current equipment in operation, making it cheaper and simpler to achieve remote/automated operation than other methods such as installing IoT cameras and sensors for each inspection target or converting to smart meters.
The robot used in this project is a next-generation avatar robot “ugo Pro” modified for facility inspection work in collaboration with ugo Corporation, a manufacturer of business DX robots.
In order to capture detailed meter readings, the robot is equipped with a 4K camera with higher image quality than the standard model, and multiple devices such as an odor sensor, microphone, and thermo camera can be mounted on the ugo itself to expand its applications depending on the inspection items.
The robot can be operated using only a PC, and its travel route can be set with no code, making it easy for on-site personnel to use the robot. The robot can switch between automatic traveling and remote control, and can be used not only for automatic inspection work, but also for multiple applications, such as work support from a distance.
These features not only allow the robot to handle a variety of inspection items, but also to expand its applications to include remote work support and construction attendance.
By using robots and sensors to remotely/automatically perform inspection work, not only can work hours be reduced, but also the threshold values for determining abnormalities, which used to rely on human senses, can be quantified to enable detection of abnormalities without relying on skilled workers.
In addition, by making it possible to remotely perform tasks that could only be performed onsite, including work support and construction attendance, it is expected to support flexible work styles and secure new workers.
About the future
In the future, NTT DATA aims to expand the scope of automation to include recording and reporting work that currently requires personnel to perform, and to reduce the time required for inspection work by up to 80% by promoting linkage with meter reading systems and abnormality detection AI.
NTT Data will also work to enhance facility management operations, such as advanced abnormality detection and predictive maintenance of facilities, utilizing data acquired by robots and sensors.
Starting in April 2023, the initiative will be rolled out sequentially to 15 data centers nationwide.
Furthermore, based on the knowledge gained from these efforts, the company aims to offer the service commercially as a remote/automated service for facility inspection operations by the end of FY2023.
For commercial provision, ugo will utilize the new robot “ugo mini” developed by making use of the knowledge obtained through joint verification with NTT DATA to develop remote/automation solutions for facility management operations, from consulting for introduction. NTT DATA provide one-stop support from system construction to operation to solve customer problems.
The day of full-scale deployment of robots for facility inspection operations at data centers is eagerly awaited to help resolve the serious labor shortage.
Utilization of geothermal heat in units of MW
When geothermal heat utilization is mentioned, “geothermal power generation” comes to mind, and instability is pointed out.
However, since geothermal heat always maintains a constant temperature, it can also be used for heating and cooling through heat exchange.
Digital Infrastructure Lab visited Mr. Masakatsu Sasada, an authority on the use of geothermal heat (President of the Association for the Promotion of Geothermal Heat Use), to learn more about how geothermal heat is being used.
There are examples of large hospitals utilizing MW units of geothermal heat for air conditioning, and inquiries to Mr. Sasada from general contractors and others have been increasing.
We also heard about popular data center sites and areas suitable for geothermal heat utilization.
We will continue our research in order to make use of this information in our concrete proposals.
Ministry of Internal Affairs and Communications, “Project for Strengthening Digital Infrastructure by Distributing Data Centers, Submarine Cables, etc. in Local Areas,” The Future of Data Center Business as Seen from the Results of the First Adoption.
List of Adopted Businesses
On June 27, 2022, the Ministry of Internal Affairs and Communications (MIC) announced the results of the first round of public solicitation for the “Project for Strengthening Digital Infrastructure by Distributing Data Centers, Submarine Cables, etc. in Local Areas”.
The selected businesses are as follows
Ishikari Enedata Center No.1 LLC
Ishikari City, Hokkaido
Yahoo Japan Corporation
Shirakawa City, Fukushima
NTT Global Data Center
Optage Inc and KS Higashi Umeda, LLC
Osaka City, Osaka
Softbank Corporation and BBIX Corporation
Ikoma City, Nara
Internet Initiative Japan Inc.
Matsue City, Shimane
Fukuoka City, Fukuoka
What is the purpose of the public offering?
The Ministry of Internal Affairs and Communications (MIC) has stated that the purpose of this public offering is to support the establishment of digital infrastructure such as data centers, submarine cables, and Internet access points (IX) in Japan, where large-scale earthquakes are expected to occur, and to develop robust communication network bases through decentralization, in order to contribute to the development of a “safe and secure” data hub from the perspective of economic security and other issues. The project will contribute to the development of a data hub that can store and process domestic and international data in a “safe and secure” manner from the perspective of economic security, etc.
Local Governments Want to Attract Data Centers
Prior to this, on April 12, 2022, the Ministry of Economy, Trade and Industry (METI) published on its official website a list of sites that are open to the establishment of new data centers.
In order to optimize data center placement, we exchanged opinions with local governments that were interested in establishing new data centers, and more than 100 local governments proposed candidate sites.
What is the future of the data center business?
According to the latest forecast of the domestic data center service market by IDC Japan K.K. released in 2021, the data center market in Japan will be worth 2,798.7 billion yen in 2025, with an annual growth rate of 12.5% from 2020 to 2025. The market is expected to continue to grow on the back of demand for cloud computing.
According to the company’s survey, new data centers are expected to be built one after another for about four years starting in 2021, and the number of business data centers to be built during this period is expected to be around 200,000 square meters (equivalent to four Tokyo Domes) annually on a total floor area basis.
Keep an eye on this increasingly active data center investment.
We propose off-balancing based on our knowledge of digital infrastructure.
Investments in digital infrastructure, as typified by data centers, are extremely expensive and require a variety of information gathering, which often results in missed business opportunities due to lack of speedy decision making. To promote sustainable digital infrastructure investment in Japan, we at Digital Infrastructure Lab bring together people with practical experience in feasibility assessments, fund and asset management, construction and development, and data center operations.
We offer ESG investment proposals that benefit your company, focusing on off-balance sheet schemes based on our knowledge in the digital infrastructure area.
For more information.
Quotes and references.
Underwater Power Generator will start its operation in Japan soon.
We hear that the enormous amount of power consumed by data centers have a significant impact on investment sentiment to data centers.
It is critical to realize power supply generated by a sustainable and reliable renewable energy system.
Underwater power generation has the potential to be one of the solutions to this issue.
Unlike tidal power generators, the “Kaireyu” ocean current power generation system, which is in the stage of commercialization in 10 years, is an experimental machine designed to utilize energy from ocean currents. The current for generation moves slower, but exists more widely in the ocean.
This means that we can install more generators and can get renewable power in more sites.
Ocean current power generation is much more efficient than wind power generation, and not intermittent as solar power generation. Japan is not an ideal area for solar power generation, and it is difficult to install tidal power generators because of active exercises by the navies near Japan.
This report says that these troublesome give Japanese researchers more opportunities for this project.
For the establishment and development of next-generation digital infrastructure
We are an asset management company established to promote investment in Japan for the assets in the digital infrastructure sector.
The development and acceleration of the digital & digital infrastructure mainly pulls economic growth, not only in Japan but also around the world. Meanwhile, digitalization in Japan is still lagging behind major Western and Asian countries (Japan ranks 27th in the World Digital Competitiveness Ranking 2020). It has passed more than 20 years since the beginning of 21st century. In Japan, however, we could not have big innovation because the political, administrative, economic, and social systems have never broken away from their traditional ways. I believe this is one of the reasons why we are too much behind other advanced countries in this field.
Going back to the late 1990s, Japan experienced financial crisis following the bursting of the bubble economy. At that time, Western investment funds accelerated their investment to non-performing loans and real estate in Japan, and gained a lot. Japan was able to escape from the worst-case scenario and gradually set a roadmap for the revival of the Japanese economy. Although Japan gained a chance to go to direct finance from indirect, it has not yet been able to create the huge investment funds like those of western countries, middle east countries and Singapore. I believe that one of the reasons for this is the national character of the Japanese people. Our risk-taking sensitivity differs from that of continental peoples. But what about this situation from the fast-growing companies point of view which requires huge capital investments? If it is difficult to raise funds through indirect financing. Without the risk money to the project, there is no hope for the future growth of the Japanese economy, and that would take away the opportunities from many talented people and companies that are trying to create new business.
Now we are in the new trend under the economic recovery from the Covid-19 crisis , the strong promotion of digitalization, the decarbonization, the change and diversification of people’s values, and the emphasis on SDGs and a symbiotic society.
We are working for the growth and acceleration of the digital infrastructure field, which is the backbone of the promotion of the digital field. Currently, AI (Artificial Intelligence) and Deep learning are the must for digital field. However digital infrastructure has not been established yet to prepare for HPC (High Performance Computing) which is necessary for these two tech. The overall digital infrastructure, including high-performance data centers, edge data centers, and communication networks and base stations, needs to be established as soon as possible. Approximately 80% of Japanese data centers are concentrated in the Kanto and Kansai area from latency and access point of view. It is a problem from a BCP perspective. In addition more than 40% of existing data centers are more than 20 years old. Furthermore low-power data centers (2 kVA/rack or less), which cannot afford to deal with huge amount of data transaction for such as AI (these are at least 6 kVA/rack). kVA/rack or more), account for more than 60% out of all data centers. And the most important point is huge amount of money is required to establish digital infrastructure. It is said that it costs more than 3 million yen per “tsubo” for total floor space to build a new data center. Its cost is about three times as much as that of a popular office building. For example, the cost of a data center with more than 1,000 racks is 10 billion yen or more. It is not easy to decide this investment by considering the size of it. From this point of view, only a few large carriers and system integrators with strong financial background can build a data center in Japan. In order to overcome this issue, we strongly recommend the liquidation of real estate investment funds (off-balance sheet investment) with asset management services. In other words, by the separation of ownership and management, we can accelerate the investment in the digital infrastructure field. At the same time, it is necessary not only to promote investment, but also to give due consideration to the trend toward decarbonization. This means that investments in digital infrastructure must be positioned as ESG investments.
We would like to contribute to the establishment of Japanese next-generation digital infrastructure and economic development by promoting the investment to the Digital Infrastructure in Japan through our asset management service. Because we want to continue to be a essential company in digital infrastructure.
Wishing that we can make good relationship with stakeholders by getting their understanding and sympathy to our vision.
Digital Infrastructure Lab, Inc.