Japan to relax REIT regulations to include data center equipment

Japanese financial authorities plan to allow real estate investment trusts (REITs) to include data center equipment in their portfolios, aiming to bring in more funds to the growth area and give retail investors more options. Currently, REITs can purchase data centers but must account for at least 50% of their portfolio. This change will expand the types of assets REITs can hold.

Japanese financial authorities are planning to allow real estate investment trusts (REITs) to include data center equipment in their portfolios, aiming to attract more funds into the growth sector and provide retail investors with additional investment options. Currently, REITs can purchase data centers but must allocate at least 50% of their portfolios to them. This proposed change would significantly broaden the types of assets that REITs can hold [1].

The move is part of a broader strategy to stimulate growth in the data center industry, which has seen unprecedented demand due to the increasing reliance on digital services. Morgan Laughlin, Global Head of Data Center Investments at PGIM, has highlighted how expanding demand and constrained supply present exciting opportunities for data center investments [2].

The decision comes as Japan seeks to capitalize on the growing importance of data centers in supporting its digital economy. The proposed change is expected to encourage more investment in the sector, which has been traditionally dominated by institutional investors.

PGIM, a global investment management business of Prudential Financial, Inc., has been expanding its portfolio advisory business in Japan. In January 2024, PGIM appointed Hirotaka Kato as head of Portfolio Solutions for Japan, highlighting the company's commitment to providing integrated private and public credit strategies to leading insurers and institutional investors in the region [1].

The expansion of REITs' investment capabilities in data centers aligns with Japan's broader economic goals to foster innovation and growth in the technology sector. This move is expected to have a significant impact on the financial landscape, offering more opportunities for investors while also addressing the growing demand for data centers.

References:
[1] https://www.pgim.com/us/en/institutional/about-us/newsroom/press-releases/pgim-expands-portfolio-advisory-business-japan-strategic-hire
[2] https://www.pgim.com/ca/en/institutional/insights/asset-class/real-estate/data-center-demand-growth-driving-unprecedented-opportunities