Malaysia and Indonesia are emerging as prime beneficiaries in ASEAN from strong global demand growth for new data centers amid AI proliferation, according to research house CGS-International. The increasing data usage in the region, driven by the proliferation of internet-connected devices and the surge in artificial intelligence (AI) training, has led to a significant boost in data center investment. Additionally, land and power availability constraints in primary markets have further fueled this trend.
According to DC Byte, data center capacity in ASEAN could increase by more than fourfold from 1,677 megawatts (MW) in the first quarter of 2024 (1Q24) to 7,589MW by 2028. This growth is underpinned by a rapid increase in data usage and additional computation demand.
| Year | Data Center Capacity (MW) |
|---|---|
| 1Q24 | 1,677 |
| 2028 | 7,589 |
“We identify Malaysia and Indonesia as prime beneficiaries of the spur in data center investment due to their location advantage, which makes them the ideal gateway for international connectivity,” the strategy note wrote.
While Singapore currently holds the highest data center capacity in ASEAN, land and power constraints have pushed operators to explore alternative locations such as Malaysia, Indonesia, Thailand, Vietnam, and the Philippines. Based on DC Byte’s projections, data center capacity in Malaysia, Thailand, and Indonesia is expected to deliver a compound annual growth rate (CAGR) of 32 percent to 56 percent from 2023 to 2028, far outstripping the 8 percent CAGR forecast for Singapore.
The report highlights Malaysia as the fastest-growing player in the ASEAN data center scene, driven by several strategic advantages including superior infrastructure, location, and favorable government policies. Since 2019, Malaysia has witnessed a flurry of activity in the data center space, with good connectivity, reliable power supply, and political stability being key attractions.
The Singapore government’s moratorium on power and land for data centers in 2019 provided an added boost to Malaysia’s data center capacity demand, especially in Johor. As of 1Q24, Johor is ranked as the 7th largest data center market in Asia by Cushman & Wakefield.
The Malaysian government has shown strong support for the data center industry, with entities like the Malaysia Industrial Development Authority (MIDA) and Malaysia Digital Economic Corporation (MDEC) establishing a Digital Investment Office to ensure faster processes and approvals. Moreover, the Green Lane Pathway initiative launched in 2023 aims to streamline power approvals, reducing the duration required to power a data center to as little as 12 months.
- Malaysia is identified as a prime beneficiary of data center investment.
- Singapore’s land and power constraints have pushed data center operators to explore alternative locations.
- Malaysia’s data center capacity is projected to grow significantly by 2028.
- The Malaysian government supports the data center industry with streamlined processes and initiatives.
- The Green Lane Pathway initiative reduces the duration required to power a data center to 12 months.
According to the Indonesia Investment Authority (INA), total data center capacity in Indonesia reached 514MW by the end of 2023. This is expected to increase to 1.41 GW by 2029, driven by the country’s digital economic transformation, shift towards cloud computing, Internet of Things (IoT) technology, and wider usage of artificial intelligence.
Another driver of Indonesia’s data center potential is its rapidly growing tech-savvy population and the accompanying surge in data usage. Under the “Making Indonesia 4.0” strategy, the Indonesian government has introduced various tax and non-tax incentives to foster growth in the data center industry. These incentives include up to 10 years of tax holiday, exemption from withholding tax on dividends, simplified procedures for repatriating profits, and relaxation of foreign ownership restrictions.
Despite these advancements, the data center market in Indonesia is fragmented, with approximately 68 data center companies. Major cities like Jakarta, Surabaya, Medan, and Batam Island are key locations for data centers, given their unique advantages in supporting expansion and efficiency.
Notable partnerships and investments in recent years include major initiatives by Google, AWS, and Microsoft, as well as collaborations with local companies like Telkom Indonesia, Indosat Ooredoo, and XL Axiata. These efforts aim to enhance cloud infrastructure, develop advanced data services, and expand data center capabilities across Indonesia.
Despite the booming data center industry, several key challenges need to be addressed to sustain and accelerate growth:
- Power Availability and Reliability: Ensuring a stable and reliable power supply is critical for data centers, but Indonesia’s power infrastructure is still developing. Additionally, the development of green data centers is hampered by the country’s relatively low renewable energy mix of 13 percent in 2023.
- Regulatory Environment and Bureaucracy: Bureaucratic inefficiencies can make doing business more expensive and challenging. While the government has improved the regulatory framework, inconsistencies and delays still pose significant hurdles for data center operators.
- Natural Disasters: Indonesia is prone to natural disasters such as earthquakes, tsunamis, and volcanic eruptions, which pose significant threats to data center infrastructure. Ensuring that data centers are built to withstand such events increases development complexity and cost.
- Skilled Labor Shortage: There is a notable shortage of skilled labor in Indonesia’s data center industry compared to Singapore. Developing and maintaining advanced data center operations require specialized skills that are currently in short supply in the country.
- Infrastructure Development: Beyond power, other infrastructure components like Internet connectivity and physical structures are crucial. While projects like the Palapa Ring have improved Internet connectivity, regions outside major urban centers still face challenges. Slow infrastructure development in potential data center hubs like Batam Island could hinder overall growth.
According to Bloomberg consensus forecasts, capital expenditure for major tech companies such as Meta, Microsoft, Amazon, and Google is expected to increase by 29 percent year-on-year to $177 billion in 2024. This surge in investment is led by hyperscalers developing proprietary large language models (LLM) for their cloud infrastructure.
In conclusion, Malaysia and Indonesia are poised to become major data center hubs in ASEAN, driven by strategic advantages, government support, and increasing demand for digital services. However, addressing the challenges related to power supply, regulatory environment, natural disasters, skilled labor, and infrastructure development will be crucial for sustaining and accelerating this growth.
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