This article first appeared in Digital Edge, The Edge Malaysia Weekly on March 25, 2024 - March 31, 2024

The data centre market in Asia is expanding rapidly, driven by the demand for cloud services, the Internet of Things (IoT) and the widespread adoption of other emerging technologies such as artificial intelligence.

When we think of data centre hubs in the region, leading “Tier 1” markets of Singapore, Japan, Taiwan and Hong Kong typically come to mind. However, the “Tier 2” markets are now showing exponential growth, propelled by a combination of growing population and internet penetration, which drives the expansion of infrastructure, government support and conducive business environments for data centre investment.

Malaysia is one of the Tier 2 markets with untapped potential to be a data centre hub. In terms of demand drivers, Asia-Pacific is expected to contribute 90% to global e-commerce growth between 2021 and 2026.

In line with this, Malaysia has one of the highest rates of internet penetration at 96.8%, with more than 33 million internet users as at January 2023. Johor is one of the fastest-growing data centre markets in the region, currently with 33mw of live and pipeline capacity and most facilities in the planning or construction phase.

Malaysia’s data centre market is on the rise, with a growing market size, increasing demand and substantial investments pouring into the local sector. The country received RM76 billion (US$16 billion) worth of investments from its data centres between 2021 and March 2023, and its data centre market is expected to attract investments of US$2.25 billion by 2028.

It is well on track to achieve its vision of accelerating its digital economy and transforming into an “Asian Digital Tiger” by 2025. This acceleration has been reinforced by the active participation of international players in Malaysia’s two major data centre regions — Greater Kuala Lumpur and Johor.

NTT, a global infrastructure and services company, recently unveiled its new data centre facility in Cyberjaya, further solidifying its commitment to the region. Amazon Web Services also recently revealed plans to launch an infrastructure region in Malaysia, with an investment plan of RM25.5 billion in the country by 2037. Additionally, GDS, a developer and operator of high-performance data centres, recently announced its first data centre for Southeast Asia, located in Johor.

Linesight has seen this growth first-hand, noting a significant increase in client demand and project developments. A key consideration for the demand is the proximity to Singapore, a testament to Malaysia’s strategic geographical advantage as a spillover market.

What makes Malaysia an attractive choice for data centre investment? First, Malaysia distinguishes itself with superior infrastructure, making it a highly conducive setting for seamless data centre operations.

Data centre providers are located around the undersea cable landing points, for decreased latency, and have received support from local utility suppliers in their requests for upgrading the local infrastructure to cope with the demands of their new developments.

The country also excels when compared with other nations, with its robust cybersecurity framework, skilled educated workforce and strategic positioning for undersea cabling initiatives. Some companies have sought Malaysia’s business reliability and its centralised location to expand their portfolio across Asia.

Beyond all of this, what sets Malaysia apart from other countries is its affordability in terms of land and energy. The availability of suitable land for development at competitive prices can significantly reduce the overall cost of setting up and operating data centres.

In response, some companies have acquired between 10ha and 20ha of land for future development, establishing a strategic base to continue to expand once future funding has been secured.

To transition from a Tier 2 to a Tier 1 data centre destination, Malaysia must adopt innovative strategies. It is essential to recognise the competitive nature of the global data centre market and the lessons that can be learnt from Tier 1 markets like Singapore, which implemented a moratorium to refocus and put the industry on a sustainable path.

Malaysia must consider several key factors to stand out from the booming data centre space and foster continued market expansion. The nation has made significant headway in upgrading its infrastructure, complemented by the establishment of government incentives, including tax incentives and regulatory support for the sector.

Leveraging its expansive land mass, Malaysia can embark on new infrastructure projects that can generate further growth. Partnerships with international data centre operators and cloud service providers have also proved to be an effective approach to attracting investment.

Malaysia’s attractiveness is further enhanced by its commitment to green energy, with an estimated 40% of power generation coming from renewable sources by 2035.

Given the increased visibility of sustainability and net zero targets, Malaysia must now actively position itself as an environmentally conscious data centre hub, prioritising energy efficiency and embracing sustainable methodologies. This transformative process should be implemented in a manner that encourages a recalibration and the formulation of a well-defined sustainability strategy for the future development and operation of data centres.

Malaysia’s data centre market shows positive future growth. With the right strategies, investments and support, the country has the potential to become a prominent leader in Asia. In the short term, Malaysia can expect a surge in data centre developments, both in terms of new facilities and expansions of existing ones.

The lessons learnt from the leaders in the data centre industry provide a roadmap for Malaysia’s ascent in the market. By embracing innovation, improving on the existing infrastructure, offering incentives and prioritising sustainability, the country can make its mark as a data centre hub and play a significant role in shaping the future of Asia’s data centre landscape.

Chris White is senior cost manager at multinational consultancy firm Linesight

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