What is the current status of Vietnam’s data centre development?

Tom Over, logistics and industrial director at JLL Vietnam

Vietnam is set to experience substantial growth in the data centre market, driven by an expanding digital economy and increasing data consumption across the region. A tech-savvy population engaged in data-intensive activities like social media usage, e-commerce, and gaming, as well as the adoption of big data, the Internet of Things, and cloud technologies are all expected to fuel a significant expansion in the market over the next decade.

Currently, the Vietnam data centre market is dominated by local telecommunications and technology companies such as VNPT, Viettel IDC, FPT Telecom, and CMC Telecom which historically have used their existing capacity for internal operational requirements.

Recently, we have started to see these groups start to offer increased colocation capacity to the market as end users start to outsource their data centre requirements. At present, there is no foreign company operating at a significant scale, which we expect to change in the next five years as the diversity and scale of operations expands and as legislation supports further investment into the space.

However, international developers and operators are beginning to enter the market, including notable projects like the 20MW facility by Gaw Capital in Saigon High-Tech Park, a 30MW project by Singapore-based Worldwide DC Solution, and a partnership between Japanese telecom giant NTT with DQ Tek.

Notably, Alibaba has announced its plans to establish a data centre in Vietnam, indicating a trend where more global cloud services providers, particularly from the US, are expected to follow, thereby enhancing market competition and diversifying offerings. We believe that the Vietnam data centre market is at an inflection point, before significant investment, expansion and sophistication takes the market to the next level of development.

What advantages does Vietnam have in developing data centres compared to other countries in the region?

Firstly, it is demographic and economic drivers. A growing economy continues to develop its banking, technology and services sectors, which will increase outsourcing of data centre requirements as companies move their operations into the cloud. Furthermore, a young tech savvy, large population driving demand for digital applications. One example of a good fundamental is that smart phone penetration is very high (around 75 per cent) and the cost of data is fairly low.

The second aspect is about energy. Vietnam has a relatively low commercial energy rates and high percentage of renewables within the energy mix. Data centres require large amounts of power and a stable grid, and have strong sustainability mandates, so access to renewables is a major value add especially in light of wider climate implications. Vietnam is in a good position to be able to provide a mix of energy contracts for large data centre users.

Thirdly is infrastructure investment. Continued development of the quality of the energy grid, submarine cables, and fibre networks will be critical to support data centre investment.

How are the development costs and pricing trends of Vietnam data centres?

According to the JLL report on Vietnam’s data centres and the opportunities on the horizon, published in March, development costs for data centres in Vietnam typically span $6-13 million per megawatt, a range that reflects the bespoke agreements that characterise data centre constructions and the variable local construction expenses.

This variance is also reflective of the broader Asia-Pacific region where countries like Japan, Singapore, and South Korea are experiencing escalating build costs, in contrast to China and India.

In terms of operational costs, the report elaborates on the retail colocation pricing dynamics, emphasising that costs can fluctuate substantially based on the kilowatt per month consumption. This pricing variability is illustrated through comparative analyses within the region, highlighting the economic diversity and strategic costing that data centre operators must consider in different Asian markets.

The new Telecommunications Law, which will take effect in January 2025, is set to provide a more structured regulatory framework with clearer definitions and guidelines for data centre and cloud computing services as telecommunications services. This legislation, with a light-touch governance approach, is expected to provide a conducive regulatory framework for the sector’s development, potentially attracting more foreign investment due to the liberalisation of market access conditions.

How will Vietnam’s data centres landscape evolve in the future, and what preparations does Vietnam need to undertake?

Following various trends we see around Asia-Pacific, the variety and scale of services which are offered to enterprise customers will continue to develop and expand. As large companies increase in size and their complexity, they may consider a move to outsourcing their data centre requirements and host their business-critical operations on the cloud network.

Furthermore, the wider implications of AI and machine learning have significant potential to considerably increase capacity demand from existing operators and end users.

Meanwhile, data centres require several factors to be in place to enable development, including but not limited to sufficient power and stable grid, alternative power contracts, high-quality fibre networks and submarine cables, supportive legislation, and access to data centre talent with experience.

All of these components are required to create the supportive environment to encourage data centre users and operators to invest and develop the wider market.