Vietnam data market charms foreign players: property firms

A host of foreign companies are looking to invest in data centers in Vietnam given its substantial growth potential while the market is still dominated by local telecommunication firms, says property service provider Jones Lang LaSalle (JLL).

High growth potential

The Vietnamese market is expected to grow significantly over the next decade due to increased adoption of big data solutions, the IoT, and cloud technologies. This growth will drive the demand for a wider range and scale of data centers as well as a wider variety of services, JLL said in a recent report.

Vietnam’s cloud and data center industry is one of the fastest growing in the world, driven by the digitalization of the local SME sector, a young and digitally literate population, the arrival of 5G, the need for self-sufficiency in digital infrastructure, and data localization laws, according to real estate consultant Savills.

The country’s data center market size is expected to increase to more than $1 billion by 2028 from $561 million in 2022, growing at a compound annual growth rate (CAGR) of 10.68%, Research and Markets, the world's top market research store, said in its report titled “Vietnam Data Center Market - Investment Analysis & Growth Opportunities 2023-2028”.

However, Cushman & Wakefield said in March that Vietnam was still in its “infancy” in comparison with mature markets such as Singapore, Japan, Australia, China, and Hong Kong.

Vietnam has a rapid population growth rate with a rising middle class that accounts for more than 80% of internet users and is still actively adopting digital banking and business activities. However, Vietnam sees the biggest shortage of data center infrastructure globally in terms of population, said Trang Bui, country head of Cushman & Wakefield.

Vietnam now has 30 data centers, mostly owned and operated by local players such as VNPT, Viettel IDC, FPT Telecom, CMC Telecom, HTC Telecom International (ECODC), and QTSC Telecom. Military-owned telecom firm Viettel last month inaugurated a 30MW data center in Hoa Lac Hi-tech Park on the outskirts of Hanoi, the largest of its kind in Vietnam.

While Hanoi and Ho Chi Minh City account for the lion’s share of the local data center market, JLL believes Dong Nai and Binh Duong, two provinces adjacent to HCMC, will see an increase in data center development thanks to land and power availability, lease expiry lengths, and infrastructure improvements.

High hope for foreign players’ entry

Given such potential, international developers and operators are starting to enter the data space in Vietnam. One of the most notable data center projects with the involvement of real estate developer is Gaw Capital’s project in Saigon Hi-Tech Park, Ho Chi Minh City. The Gaw project is scheduled to be operational in Q1/2026, offering a facility with a 20MW capacity.

Other notable names to enter the field include a 30MW project by Singapore-based Worldwide DC Solution, and a $70 million data center project developed through a partnership between Japanese telecom giant NTT and Vietnam’s DQ Tek.

Multi-industry conglomerate Hyosung, the third largest South Korean investor in Vietnam after Samsung and LG, has plans to build a large data center in HCMC.

At present, cloud providers have not established their own data centers in Vietnam. “However, it is only a matter of time until Google, AWS, Microsoft, Tencent and Alibaba look at development,” noted JLL analysts.

Taking other Southeast Asian countries as a proxy for future growth of the Vietnam market, they said that Vietnam is primed for significant and sustained growth in capacity, given the favorable macroeconomic and demographic factors at play.

“Recently, we have seen significant interest from data center operators and investors looking to survey the Vietnam market,” said Trang Le, head of research & consultancy, JLL Vietnam.

Celina Chua, data center client solutions director (APAC) at JLL, noted: “Vietnam has recently climbed the priority list of countries investors and operators are looking to understand as they work out their market entry.”

“This interest is driven by Vietnam’s strategic geographical location, dynamic economic policies, a young tech-savvy population, and the need for data localization, positioning it as an important hub for data centers in Asia,” Chua added.

Energy and legal issues

The JLL report points out that the spread of construction cost per MW of a data center ranges from $6-13 million globally, dependent on local construction costs, labor rates, and price of materials.

According to JLL, construction costs are going up in countries like Japan, Singapore, and South Korea while costs in China and India remain “very competitive” for data center developments.

The JLL report noted that Vietnam is moving to phase out reliance on coal-based power generation to a more diversified mix, including a higher proportion of gas turbines and renewable energy.

The country now has clarity on the capacity allocation for domestic gas fired projects, renewables and legislative mandate for a number of key initiatives, including Power Purchase Agreements (PPA), which will benefit data center operators and end users looking to buy directly from power generating companies.

Data center service is a conditional business in the Investment Law. Prior to the issuance of the Telecommunications Law 202312 with regulations on data center and cloud computing services effective from January 1, 2025, detailed conditions for investment in and provision of data center services were unclear.

Vietnamese laws also do not provide any specific or clear business lines relating to data center related services. Accordingly, data center service providers will have to look for and register business lines that most closely match the contemplated business activities.

The Telecommunications Law 2023, set to take effect in January 2025, will provide a more structured regulatory framework with clearer definitions and guidelines for data center and cloud computing services as telecommunications services.

This law, with a light-touch governance approach, is expected to provide a conducive regulatory framework for the sector's development.