Decoding Vietnam’s Data Centre Potential: Insights from the Vietnam Real Estate Symposium
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Headlining Vietnam’s largest real estate summit – the Knight Frank and Australian Chamber of Commerce Vietnam Real Estate Symposium – Mr. Fred Fitzalan Howard, Knight Frank’s APAC Data Centre Lead, joined a robust discussion about the potential and pitfalls of Vietnam’s emerging data-centre industry.
In the shadow of the government’s Decree 53, which requires companies storing Vietnamese data to host that data in the nation, with the sweeping reforms expected to drive demand for data centres nationwide. Decree 53/2022 requires both international and foreign companies to store the personal information of Vietnamese users, the data that they generate, and data on their relationships in the various specified ‘captured sectors’ which include social media, e-commerce and online gaming for a minimum of 24 months.[1]
As it stands, Vietnam, with its 27 operational data centres, is unlikely to have the capacity to meet the potential requirements and ramifications that this decree implies – a key driver for investors to look at the pace in future.
“Vietnam’s large population and digital service requirements – there are 100 million people on their smartphones generating new data constantly – which ensures prolonged future demand from people here, and the emergence of AI is a significant accelerator of this, with a typical ChatGPT request ultimately generating about eight-times more data than a similar Google search.”
Fitzalan Howard also talked of “hyperscaler” companies such as Microsoft, Google and Amazon – the latter of which visited Vietnam in March and announced its interest in data centres in the country.[2]
“There remains a degree of uncertainty around leasing in the sector,” Fitzalan Howard explained how Cloud Service Providers are currently taking a cautious approach to Vietnam as they delay their entry to the market to ensure that suitable data centre capacity is constructed to an audience of over 150 industry representatives gathered in central Ho Chi Minh City.
A recent report by the Telecommunications Authority under the Ministry of Information and Communications acknowledged that Vietnam’s data-centre sector is trailing the growth in demand spurred by its own digital transformation initiatives, with only 27 data-centres presently in operation in Vietnam.[3]
In line with this, analysts predict that the sector will grow at just under 9% CAGR every year until 2029[4], seeing growth from a $561 million sector last year, to well over a billion in the same period[5].
“Secondary markets such as Vietnam offers huge advantages to early movers who can beat the barriers to entry,” Fitzalan Howard said to the attending crowd. “This means that frontier data centre developers, who are able to deliver projects to the standards demanded by these hyperscalers, which account for around 85% of all data internationally – will find themselves sought after for future projects in that market, while the developers who get in early will likely find themselves as acquisition targets with a clear and profitable exit path in the years ahead.
He noted that a typical fit-out of a 30 MW data centre around the region is in the vicinity of US$300 million – which ensures longer leases and “stickier” tenants, who are likely to grow with the data centre over time, and unlikely to relocate – making the industry potentially very strong for property investors and developers.
“Still,
power and infrastructure remain large barriers,” he noted, citing the need for
always-on power, and some of the challenges northern Vietnam faced when a
prolonged drought impacted the availability of power from hydro-stations.
“Electricity grids were not designed with data centres
in mind. One data centre in London accounts for about 5x the energy of nearby
Heathrow Airport for example,” he said. “Ultimately you need to find a sub-station
very close to your proposed data centre site, which means that the land, the
land-usage rights, and appropriate legislation needs to all line up for this sector
to flourish.”
[1] https://vietnam-business-law.info/blog/2022/9/4/decree-532022-further-guidance-on-data-localisation-in-vietnam
[2] https://theinvestor.vn/demand-for-data-centers-attracts-global-investors-to-vietnam-d4313.html
[3] https://hanoitimes.vn/vietnams-data-center-market-embracing-green-development-324588.html
[4] https://www.mordorintelligence.com/industry-reports/vietnam-data-center-market
[5] https://theinvestor.vn/demand-for-data-centers-attracts-global-investors-to-vietnam-d4313.html
