Malaysia is emerging as a dynamic data hub in Southeast Asia and beyond, as demand for cloud computing and artificial intelligence (AI).
In recent years, the country has attracted billions of dollars in investment in data centers, with significant investments from tech giants such as Google, Nvidia , and Microsoft.
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Many of these investments have been made in the small city of Johor Bahru, which borders Singapore, according to James Murphy, managing director of APAC at data center intelligence firm DC Byte. “It looks like within a few years, [Johor Bahru] will overtake Singapore to become the largest market in Southeast Asia, starting from a base of almost zero two years ago,” he said.
Johor Bahru has been identified as the fastest growing market in Southeast Asia in DC Byte’s Global Data Center Index 2024. The report said the city has a total data center supply of 1.6 gigawatts, including projects under construction, committed or in the early stages of planning. Data center capacity is typically measured by the amount of electricity they consume.
If all of the planned capacity comes online in Asia, Malaysia will lag behind only larger countries like Japan and India. Until then, Japan, followed by Singapore, currently leads the region in live data center capacity.
The index did not provide a detailed breakdown of data center capacity in China.
Demand Shift: The vast majority of investments in data center infrastructure and storage have traditionally been directed to the established markets of Japan, Singapore, and Hong Kong.
However, the global pandemic has accelerated digital transformation and cloud adoption worldwide, leading to increased demand for cloud providers in emerging markets such as Malaysia and India, according to a report by global data center provider EdgeConneX.
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"The increased demand for streaming, data storage, and anything done over the internet or phone essentially means a greater need for data centers," Murphy said.
The growing demand for AI services also requires specialized data centers to house the large amounts of data and computing power needed to train and develop AI models.
While many of these AI data centers will be built in established markets like Japan, Murphy said emerging markets will also attract investment due to their favorable characteristics.
AI data centers require significant space and energy, so emerging markets like Malaysia, where energy and land are cheap, offer advantages over smaller city-states like Hong Kong and Singapore, where these resources are limited.
Spillover from Singapore
Data center-friendly policies have made Malaysia an attractive market. In 2023, the authorities launched the Green Lane Pathway initiative, which speeds up power approvals, reducing the delivery time to 12 months for data centers.
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Another major catalyst in recent years has been Singapore’s cross-border policy. Despite a talent pool, business confidence and excellent fiber connectivity that make it attractive for data centers, the Singaporean government began restricting capacity growth in 2019 due to high energy and water consumption.
As a result, much investment and planned capacity has been shifted from Singapore to neighboring Johor Bahru in recent years. Recently, Singapore has changed its stance, publishing a roadmap to increase its data center capacity by 300 MW, provided that green performance and renewable energy. These efforts have attracted investment from companies such as Microsoft and Google.
However, Singapore is too small for large-scale green energy production, so there are still market constraints, said DC Byte's Murphy. Local officials are increasingly concerned about high energy consumption, according to a recent report in The Straits Times.
Johor Bahru City Council Mayor Mohd Noorazam Osman said that investments in data centers should not jeopardize local water and electricity needs.
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Meanwhile, an official from the Johor Investment, Trade and Consumer Affairs Commission told ST that the state government will implement more guidelines on the use of green energy from June.
Source: cnbc
