Data center growth potential
According to a recent study by Savills, demand for data centers in Asian countries is increasing due to the development of the digital economy and the increase in online shopping habits. Countries such as India, Indonesia and Malaysia are also developing strategies to catch up with this demand.
In particular, Malaysia has invested in digital infrastructure, through the deployment of undersea cables, increased domestic connectivity and the development of 5G. This has attracted interest from foreign companies, such as Australian data center investor NEXTDC, which is building a 65MW data center here.
Meanwhile, in India, the total data center capacity additions in the country are expected to be 150 MW in 2022 and 250 MW in 2023, taking the total current data center capacity in India to 1 GW. Government-led initiatives such as Digital India, or the emphasis on self-reliance and data protection through data localization, are expected to increase the volume of data in the country, leading to increased demand for data centers.
Top 10 Emerging Global Data Center Markets 2023.
For Indonesia, the appeal of data centers is not limited to domestic consumption but also to foreign demand. One of them is Batam, an Indonesian island near Singapore, which is expected to become a data center hotspot in the future, serving both Indonesia and Singapore. The island is developed and utilizes conventional and renewable energy, making it attractive to data mining units.
According to the Savills Asia Pacific report, Vietnam's data center is considered one of the fastest growing markets in the world thanks to the digitalization of domestic small and medium enterprises and a young, digitally savvy population, the emergence of 5G, the need for self-sufficiency in digital infrastructure and data localization laws.
According to Savills Vietnam, there are a total of 28 data center projects nationwide with a total capacity of 45 MW. The market has recorded the participation of 44 service providers. Since the first quarter of 2021, requests from foreign data center operators are looking for locations and potential joint venture partners, as hyperscale companies have announced their interest in Vietnam. Notably, in August 2022, Amazon Web Services (AWS) announced the launch of data centers in Hanoi and Ho Chi Minh City.
The development of data centers in Vietnam is entering a "boom" phase.
With its orientation to become an important digital hub, Vietnam's data center market is forecast to grow to US$1.04 billion by 2023, up from US$561 million in 2022 and achieving a compound growth rate of 10.7%.
However, according to Mr. Thomas Rooney - Senior Manager, Industrial Advisory Services, Savills Hanoi, rapid growth brings risks and responsibilities to ensure data privacy, cybersecurity, sustainable resource consumption, reliability and service quality. This means Vietnam must address the challenges and opportunities of cloud computing, colocation, enterprise and edge computing and their role in driving the country’s digital future.
Vietnam is holding many advantages.
Previously, Cushman & Wakefield also had statistics on data center project development costs in 2023/2024 in 37 cities of 14 key markets in Asia - Pacific. Of which, 5 markets have the highest average land prices in the region: Singapore (11,573 USD/m2), South Korea (9,695 USD/m2), Hong Kong (3,418 USD/m2), Japan (3,320 USD/m2) and Mainland China (2,966 USD/m2).
As for construction costs, raw material, energy and transport costs have not shown any signs of abating and remain high, leading to record high construction costs in USD per Watt. Specifically, the five markets with the highest construction costs in the region are Japan (USD 12.73/W), Singapore (USD 12.73/W), South Korea (USD 12.73/W), Hong Kong (USD 12.73/W) and Australia (USD 12.73/W), with typical annual cost increases in Singapore of 8% and Australia of 3.5%.
Meanwhile, Vietnam has an advantage in rental prices due to having the lowest average price in the region at 168 USD/m2 for data center projects. In addition, construction costs in Vietnam are also very low in the Asia Pacific region at 6.70 USD/W.
Land rental prices in Vietnam for data center development are among the cheapest in the region.
According to Ms. Trang Bui, General Director of Cushman & Wakefield, compared to mature markets, the data center market in Vietnam is still in its infancy with a more modest growth rate. However, with competitive construction costs and land prices, along with a prime geographical location, Vietnam is an emerging market that is always in the sights of investors. Specifically, Ho Chi Minh City and Hanoi currently own 45MW of operating capacity, 16MW under construction and the prospect of an additional 40MW in the future, with a vacancy rate of 42%.
These advantages are expected to drive real estate growth, especially as the search for land for data center development continues in both emerging and developed markets across Asia Pacific. Land with zoning and available power, and without binding contract terms, is increasingly difficult to find at commercially viable prices.
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