Vietnam primed to make use of data centre potential

The 2023/2024 Data Centre Construction Cost Guide, a survey by Cushman & Wakefield covering 37 cities in 14 key markets, focused on the synthesis of information on data centre project development costs, including land purchase prices, demolition and site clearance costs, and construction costs for standard and premium centres in the Asia-Pacific.

Vietnam primed to make use of data centre potential, illustration photo/ Source: freepik.com

Accordingly, the five markets with the highest average land prices in the region are Singapore at $11,500 per square metre, South Korea at $9,700, Hong Kong at $3,400, Japan at $3,300, and Mainland China at just under $3,000.

The main reason is the scarcity of land along with available power sources, combined with rising interest rates, which have contributed to the increase in land purchase prices.

The high prices of these markets can bring better investment opportunities to markets in Southeast Asia thanks to competitive land prices. Of which, Vietnam has the lowest average price in the region at $168 per sq.m for data centre projects.

As for construction costs, raw material, energy and transport costs have not shown any signs of abating and are anchored at all-time highs, driving record high construction costs in USD per watt.

The five markets with the highest construction costs in the region are Japan at $12.73/W, Singapore $11.23/W, South Korea $9.23/W, Hong Kong $9.20/W, and Australia $9.17/W, with typical annual cost increases in Singapore of 8 per cent and Australia of 3.5 per cent.

In contrast, the markets with the lowest construction costs are the Philippines at $4.59/W, followed by Taiwan $6.15/W, and Vietnam at $6.70/W.

James B. Normandale, head of Speciality Real Estate for Asia-Pacific Project Management Services at C&W, said that emerging markets draw in investor interest as mature markets tighten supply.

“There are three main reasons for the rising construction costs. The number of investors interested in entering the market is increasing, the number of experienced contractors is still quite limited, and rising energy and raw material prices and persistent inflation, despite improvements across the supply chain,” he said.

“Larger data centre construction also increases costs, with the need to scale up as soon as possible and easily build utilities for larger developments,” he added.

In addition, large-scale projects are often built far from city centres, exacerbating the shortage of construction labour in remote areas. Furthermore, choosing a more remote location also increases supply and operating costs.

The Asia-Pacific region is witnessing strong expansion in data centre markets, with 9.8GW of capacity currently in operation, 3.4GW under construction, and 8.8GW in planning.

The accelerating AI and machine learning industry is also expected to create a huge demand for new data centre networks over the next two to three years, putting pressure on supply in various markets.

Developers have begun adopting prefabricated construction methods to meet this demand, which can reduce construction times by 30-50 per cent, and C&W expect this trend to continue.

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