Data Center Development Costs in Japan - 2025 Spring
Published on 2025-03-07
The cost of data center development in Japan today is approximately 1.3 times higher than a few years ago. Several factors contribute to this increase. One major reason is the depreciation of the Japanese yen. Since data center development relies heavily on overseas products and components, it is significantly affected by currency fluctuations. Additionally, rising wages and increasing material costs have been successfully passed on to construction prices.
Another factor is the shortage of contractors relative to the number of ongoing projects. This applies not only to general contractors but also to subcontractors. As a result, contractors can selectively choose projects, creating a seller's market where price increases are more easily accepted. The underlying reasons for this seller's market include labor shortages, urban redevelopment, the Osaka Expo, and semiconductor plant construction.
Current Cost Trends
As of now, the average development cost stands at:
- Tokyo area: 2.5 - 2.8 million JPY/kW
- Osaka area: 2.3 - 2.4 million JPY/kW
Four years ago, Osaka's development cost was around 1.5 million JPY/kW.
Impact on Lease Prices and Profitability
For data center operators, the key question is whether they can pass on increased development costs to lease prices. The answer varies. In projects that began planning several years ago, lease rates were often predetermined based on initial agreements with end-users, making cost pass-through difficult. In such cases, the profit margin can drop to as low as 7%.
On the other hand, in recently initiated projects, lease price adjustments have been easier. The growing demand for data centers, particularly due to AI-related infrastructure needs, has created a seller's market for developers. In such cases, profit margins can be maintained at around 10%.
Currently, the average lease price is approximately 20,000 JPY/kW per month, up from the previous 16,000 JPY/kW per month.
Future Outlook
Looking ahead, further increases in lease prices may be challenging despite the seller’s market. One reason is that supply is expected to catch up with demand in the next three to four years, potentially disrupting the seller’s market dynamics. Additionally, lenders have become more cautious about financing data center development. Many banks now require firm commitments from end-users before approving loans, reflecting increased scrutiny over the rapidly expanding sector.
As the industry evolves, data center developers must carefully navigate cost control, pricing strategies, and financing conditions to sustain profitability in a changing market.