Over the past few years, the country has attracted billions of dollars in data center investment, including from tech giants like Google, Nvidia, and Microsoft. Much of that investment is in the small city of Johor Bahru, according to James Murphy, Asia- Pacific managing director at data center information company DC Byte. He predicts that in just a few years, Johor Bahru alone will surpass Singapore to become the largest data center market in Southeast Asia, having essentially been zero two years ago.

Johor Bahru was named the fastest-growing market in Southeast Asia in the DC Byte Global Data Center Index 2024 report. The report said the city has a total of 1.6 gigawatts of data center capacity, including projects under construction, committed, or in the early planning stages. Data center capacity is typically measured by the amount of electricity it consumes. If all the planned capacity is realized, Malaysia will be second only to Japan and India in Asia. Currently, Japan and Singapore lead the region in data center capacity.

Need for mobility

Traditionally, the majority of investments in data center infrastructure and storage have gone to established markets such as Japan and Singapore, as well as Hong Kong (China). However, Covid-19 has accelerated digital transformation and cloud adoption, leading to a surge in demand for cloud providers in emerging markets such as Malaysia and India, according to a report from global data center provider EdgeConneX.

“The increased demand for video streaming, data storage and anything that's done over the internet or on phones, essentially means there's going to be more demand for data centers,” said Murphy.

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Malaysia has attracted several billion-dollar data center projects in recent years. Photo: MIDA

The booming demand for AI services also requires dedicated data centers that house the large amounts of data and computing power needed to train and deploy AI models. While many of these AI data centers will be built in established markets like Japan, emerging markets will also attract investment due to favorable conditions, Murphy said.

AI data centers require a lot of space, energy and water for cooling, so countries like Malaysia, where energy and land are cheap, have an advantage over resource-constrained Hong Kong and Singapore.

Friendly policy

Data center-friendly policies also make Malaysia an attractive market. Authorities have launched the Green Lane Pathway initiative in 2023 to streamline power approvals, reducing the waiting time for data centers to 12 months.

However, another major catalyst in recent years has been Singapore’s trans-border policy. Despite its advantage in talent, reliability and fiber connectivity, the Singapore government began to restrict data center capacity growth in 2019 due to the scale of energy and water consumption. As a result, a lot of investment has been diverted from Singapore to the Johor Bahru border in recent years.

Singapore has recently changed its stance and has outlined a roadmap to add 300 MW of data center capacity, provided it meets renewable and environmentally friendly energy standards. Such efforts have attracted investment from companies such as Microsoft and Google. However, Singapore is too small to produce large-scale green energy, so there are still many limitations in the market, said Murphy.

Resource stress

Despite the positives, the data center boom in Malaysia has raised concerns about energy and water needs. Investment bank Kenanga estimates that electricity demand from data centers in the country will reach a maximum of 5 GW by 2035. According to Malaysian electricity company Tenaga Nasional Berhad, the current electricity capacity for the whole country is about 27 GW.

Local officials are increasingly concerned about such energy consumption, with Johor Bahru City Council Mayor Mohd Noorazam Osman saying that investments in data centers should not affect local resource needs, given the city’s struggles with water and electricity supplies.

Meanwhile, an official from the Johor Investment, Trade and Consumer Affairs Board shared that the state government will issue more guidelines on green energy usage for data centers in June.

(According to CNBC)