Updated legislation can propel data centre fortunes

The Law on Telecommunications, which took effect on July 1, says there are no foreign ownership caps for data and cloud providers. Could you shed some light on the new regulation?

Julien Curtet, partner of Index Partners

The new Law on Telecommunications helps clarify the legal framework for data centre business in Vietnam, proving conducive for data centre business as a whole.

First and foremost, prior to this law, there was no formal legal definition of data centre in Vietnam, making it difficult to assess the legal requirements needed to conduct data centre services in the past. The law also establishes requirements for the development and operation of data centres assets in the country, including the various investment models and licences needed.

Finally, the law enacts that data centre services are not subject to foreign restrictions limitations (as long as it does not provide internet services) which, given the high level of investment needed for such facilities, enhances the ability of foreign investors to invest in the country without limitations.

Overall, the new law, by clarifying the legal framework, will be very conducive to business in Vietnam.

Vietnam’s data centre industry is one of the fastest-growing in the world. How do you see the trend of local and foreign data centre providers expanding in Vietnam?

According to Statista, revenue in Vietnam’s data centre market is projected to reach $1.83 billion in 2024. Vietnam’s market is expected to grow at an annual growth rate of 7 per cent from 2024 to 2028, resulting in a market volume of $2.40 billion by 2028.

Digital adoption, internet usage, and connectivity are the key drivers of data centre industry across the world. Specifically, Vietnam boasts a 70 per cent internet penetration rate and 76 per cent population with mobile access focusing on over-the-top content, streaming, video games, and social networks.

This, coupled with the fairly good connectivity of Vietnam with the rest of the world via terrestrial and subsea cables, makes the data centre market bright in Vietnam.

As such, we can expect a lot of players to enter the market in the next few years as large tech companies expand their investment into the country. AWS and Microsoft having recently signed large partnerships with local institutions are strong signals of the upcoming need for capacity in the country.

Additionally, related investors are shifting away from Hong Kong and Singapore to neighbouring countries due to land scarcity, high power price, and constraining regulations. Malaysia and Thailand have emerged as the hottest alternatives, followed by Vietnam as the third ideal country for data centre investments.

Do you expect more large-scale data centres, clusters, or other new models to emerge in Vietnam?

Globally, the market is driven by the large public cloud providers such as Amazon, Microsoft, Meta, and Google, requiring large amount of power capacity to operate when they enter a country. Given they are likely to come in Vietnam in the near future as they did or announced recently in other markets in the Southeast Asian region, the data centre operators in the market will need to offer large-scale facilities to cater to their needs.

The announcement of the partnership between VNG Corporation and ST Telemedia Global Data Centres for a large-scale facility in Ho Chi Minh City follows that trend.

Indeed, hyperscale data centre providers are making moves into Vietnam to increase their cloud footprint, boosting demand.

Specifically, in July, CMC Corporation announced that it has invested $12.5 million to establish a subsidiary that aims to construct and operate hyperscale data centres. In May, VNG partnered with Nvidia to boost cloud computing capabilities.

Also in the same month, Alibaba announced a plan to build a Vietnamese data centre to follow local storage laws, while Hyosung unveiled its plan to build a data centre in Saigon Hi-Tech Park to tap into the growing demand for digital infrastructure in the region.

What are the opportunities for industrial property developers to develop data centres as lucrative assets?

Data centres operate similarly to a real estate business, where the data centre rents out power instead of space, complemented by services to manage customer equipment. Currently, Vietnam’s market is dominated by local telecom players catering to local customers, with relatively lacklustre infrastructure and capacities to accommodate requirements from global companies.

To develop a successful data centre business, one needs four competences: the ability to get land, the ability to procure power, data centre operational skills, and the ability to sell data centre capacity. Industrial property developers are usually very skilled at the first two competences, but usually lack specific capabilities for data centres.

This is why there will be more and more joint ventures between local developers and international data centre operators in order to gather all competences together.

Vietnam boasts strong status for data centre progress Real estate company JLL has in recent months offered comprehensive market reports on Vietnams data centre sector. Tom Over, logistics and industrial director at JLL Vietnam, talked to VIR’s Bich Ngoc about the growth potential and the emerging opportunities of data centres for both investors and operators.