Growing demand for land plots to develop data centres

Costs for constructing data centres are not cheap when compared to regular warehousing or offices. Photo: Shutterstock

According to JLL Vietnam, the consultancy has received many requests for acquiring and leasing land plots, as well as ready-built structures, meant for establishing data centres in Vietnam.

“While the land fund in the central area of cities is increasingly short, the suburbs offer plenty of land with good rents and are less affected by natural disasters, thus rendering ideal locations for this demand. The ability to connect to 4G and 5G networks also greatly affects investors’ decisions for choosing a location for their data centres,” said Trang Bui, senior director at JLL Vietnam.

“The requirements by IT investors from the US, India, and Japan mostly range from 10,000 to 30,000 square metres,” said Trang.

With the global economy under pressure, “real estate investors are looking for defensive strategies that will keep them safe during the downturn. Thus, data centres are currently at the top of investors’ list of concerns,” she added.

Another attraction for investors is long-term rental contracts, as rental demand is less affected by the ups and downs of the traditional real estate market, helping investors enjoy more stable and sustainable benefits.

Profits on data centres tend to be higher than in traditional real estate sectors. For example, while the overall real estate investment market has gone down by 12 per cent this year, investments in data centres real estate have grown by 25 per cent on average.

“Data centres are an alternative real estate segment for investors who are faced with record-low yields and eager to hunt for new opportunities in potentially growing segments,” Bui added.

The popularity of online access and a lowered interest in self-managed servers from companies in the financial, healthcare, retail, and consulting sectors also increase the demand for cloud solutions. All those are the primary sources driving the growing demand for data centres, according to Bui.

Investments in data centres serve the zettabyte era as livestreams, working from home, and online meetings will continue to generate more data than ever.

According to a 2016 Cisco report, the zettabyte era became a reality as global internet traffic crossed the 1.2 zettabyte threshold. When the pandemic broke out in early 2020, the widespread lockdowns of cities around the globe, along with the social distancing policies and the work-from-home schemes changed many things in daily human activities.

This year, Cisco forecasts that global internet traffic will triple compared to 2016 and reach 3.3 zettabytes, of which online video traffic (including Netflix and YouTube) accounts for 82 per cent.

According to Cisco’s expectation, the number of devices connected to the internet in 2021 will be more than three times the global population, amounting to 27.1 billion devices, 43 per cent of which are mobile connections.

A JLL report notes that the global data centre revenue is growing at a 15.7 per cent year-on-year. Cloud computing and storage services will reach a value of $163 billion by 2021, up nearly 30 per cent from 2017.

“The growth rate of data volumes will continue to be exponential, and this promises a bright future for the data centre market,” reads the report.

However, various investors may still face many challenges, as the cost of building a data centre is many times higher than that of a traditional warehouse or office building.

The variety of regulations by cities is another issue, so investors need to understand the market fundamentals, financial viability, and local rules.

Data centres are an essential part of any business to lease infrastructure for servers to store and analyse data. Global data centres are categorised into four tiers serving different needs.

Vietnam currently has no data centre at the highest tier 4. Currently, there are five data centres that meet tier-3 standards, most of which are operated by domestic telecommunications corporations such as VNPT, CMC Telecom, FPT Telecom, VDC Group, and Viettel Group.