Wide hallway with supercomputers in server room data center.
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Much of the investment is focused in the small city of Johor Bahru, which sits on the border with Singapore, said James Murphy, Asia Pacific managing director at data center intelligence firm DC Byte.
“Within a few years, [Johor Bahru] “China will overtake Singapore to become Southeast Asia's largest market, up from virtually zero just two years ago,” he said.
Johor Bahru has been named the fastest growing market in Southeast Asia in DC Byte's 2024 Global Data Centre Index.
The report said the city has a total of 1.6 gigawatts of data center capacity – data center capacity is typically measured by the amount of electricity it consumes – including projects under construction, committed or in the early stages of planning.
Once all planned capacity across Asia is operational, only larger nations — Japan and India — will overtake Malaysia. Until then, Japan and Singapore currently lead the region in terms of operational data center capacity.
The index does not provide a detailed breakdown of China's data center capacity.
The majority of data center infrastructure and storage investments have traditionally been made in established markets such as Japan, Singapore and Hong Kong.
However, the global pandemic has accelerated digital transformation and cloud adoption around the world, leading to a surge in demand for cloud providers in emerging markets such as Malaysia and India, according to a report by EdgeConneX, a global data center provider.
“The increased demand for video streaming, data storage, everything that goes on the internet and on phones essentially means there's an increased need for data centers,” Murphy said.
As demand for AI services soars, so does the need for specialized data centers to store the massive amounts of data and computing power required to train and deploy AI models.
While many of these AI data centers will be built in established markets such as Japan, Murphy said emerging markets would also attract investment due to their favorable characteristics.
AI data centers require huge amounts of space, energy and water for cooling, which gives emerging markets such as Malaysia, where energy and land are cheap, an advantage over smaller city-states such as Hong Kong and Singapore, where those resources are limited.
As such, over the years, a lot of investment and planned capacity has been channelled from Singapore to neighbouring Johor Bahru.
Singapore recently reversed course, unveiling a roadmap to add 300MW of data-center capacity, provided more projects meet green efficiency and renewable energy standards — an initiative that has attracted investment from companies such as Microsoft and Google.
Still, Singapore is too small to generate green electricity on a large scale and the market remains subject to many constraints, DC Byte's Murphy said.
The rapid growth of data centers has helped boost Malaysia's economy, but it has also raised concerns about energy and water needs.
Kenanga Investment Bank Research projects that potential electricity demand from data centers in Malaysia could total up to 5GW by 2035. Malaysia's current installed power capacity across the country is about 27GW, according to Malaysian power company Tenaga Nasional Sdn Bhd.
Local authorities are growing increasingly concerned about the scale of this electricity usage, according to a recent report in the Straits Times.
Johor Bahru City Council Mayor Mohamed Noorazham Othman was reported as saying that given the city's water and power supply challenges, investment in data centers should not undermine local resource needs.
Meanwhile, an official from the Johor State Investment, Trade and Consumer Affairs Commission told ST the state government will implement further guidelines on green energy use for data centres in June.
