Who’s pulling ahead in South-east Asia’s data centre race?

THE start of the artificial intelligence (AI) boom has led to a global race among countries to build more data centres and ramp up their capacity.

It’s no different in Singapore and the South-east Asia region, with billions of dollars committed to build data centres in the region this year. Singapore re-opened its doors to new investments in 2022, after imposing a moratorium on building data centres in 2019.

Despite the three-year moratorium, the city-state still enjoys a wide lead in terms of total capacity of 1.4 gigawatts (GW) – and it wants to build up another 300 megawatts of additional capacity. Overall, Singapore has over 70 data centres.

Data centre capacity is measured by the amount of electricity consumed, as defined by watts. However, analysts said space and power constraints are likely to limit Singapore’s pace of growth in this sector.

In particular, Malaysia has emerged as the frontrunner to challenge Singapore’s dominance, but Thailand is fast growing as a potential competitor, according to analysts.

As the race to build more and larger facilities to accommodate the boom in AI charges ahead, will Malaysia be able to hold on to its pole position in South-east Asia?

Most analysts The Business Times spoke to believe so, pointing out that Malaysia has a substantial leg up compared to Thailand and Indonesia.

Vivian Wong, senior analyst at market intelligence firm DC Byte, told BT that Malaysia is “significantly ahead” of its South-east Asian neighbours. She noted that it managed to achieve more than half of Singapore’s capacity in about three years, with “exponential growth” from Johor, thanks to “the spillover demand from the Singapore moratorium”.

This is “setting the stage for future wave of expansion”, she said.

RHB analysts Jeffrey Tan and Wan Muhammad Ammar Affan are also upbeat on Malaysia’s prospects. 

The country “is set to emerge as the largest DC hub in the Asean region”, they said in an Oct 2 report.

They pointed out that more than 1 GW of supply is expected to come on stream over the next two years, about double Malaysia’s current capacity.

This means that potential data centre inventory by 2028 would be more than ten times what it took Malaysia’s industry to build over the last two decades, putting it ahead of its southern neighbour Singapore, RHB said.

The analysts added that Singapore’s capacity – currently the largest in South-east Asia – is projected to stabilise at 1.4 GW due to land scarcity and stricter conditions imposed on new builds.

Apart from attracting global tech giants such as Microsoft, Google and Amazon to commit to building data centres there, Malaysia has also drawn investments from regional firms such as ByteDance. 

The Malaysian government said it approved digital investments totalling RM141.7 billion (S$46.8 billion) in the first 10 months of this year.

Adding to the bullishness surrounding Malaysia’s data centre ambitions are the upcoming plans for the Johor-Singapore Special Economic Zone (JS-SEZ). RHB said these could further burnish the south Malaysian state’s credentials as a data centre hub.

However, some analysts are of the view that the investments are straining Malaysia’s power and water resources. In November, Johor said it had rejected almost 30 per cent of data centre applications in the preceding five months. This was because the authorities have been trying to focus on conserving resources and regulating the industry to ensure maximum benefits for the local economy.

And that’s why some analysts peg Thailand as a contender to Malaysia, as its abundance of power could steal the latter’s thunder.

Morgan Stanley said Thailand’s power market, where supply has exceeded demand for almost a decade, will prove attractive to the so-called hyperscalers. These refer to large cloud service providers such as Amazon, Microsoft and Google. 

“Thailand has one of the highest proportions of renewable generation in Asean at 20 per cent, a key focus area for hyperscalers looking to decarbonise,” Morgan Stanley analysts said in a recent report.

The report also pointed to the limited clarity on how the development of generative AI could affect Thailand, which has drawn about US$9 billion in investments from hyperscalers to develop cloud infrastructure.

Morgan Stanley isn’t alone. Macquarie said Thailand is in the early days of its “data centre rush”, as Malaysia struggles to keep up with surging demand.

While the battle for South-east Asia’s data centre dominance has so far been focused on Malaysia and Thailand, one might wonder about the lack of bets on Indonesia.

After all, in terms of the number of data centres, the region’s biggest economy trumps Singapore – which houses more than 70 – with 145. It’s also ahead of Malaysia and Thailand.

But its key metric of operational live capacity is far behind: at 261 MW – about half of Malaysia’s and one-quarter of Singapore’s, according to data from DC Byte.

Glen Duncan, data centre research director for Asia-Pacific at JLL, told BT that’s because data centre operators and big tech firms prefer Johor over the likes of Batam, as they seek to capture the spillover in demand from Singapore.

The boom in AI has further benefited Johor. Its “close proximity to Singapore’s dense digital infrastructure and connectivity ecosystem is also a key reason that Johor has assumed an AI hub role”, he said.

The much higher planned capacity for Malaysia (exceeding 5 GW) – which includes data centres being built and committed to – compared to around 2 GW for Indonesia, also suggests it’s primarily driven by domestic requirements, DC Byte’s Wong said.

That’s especially when one looks at the vast discrepancy between their populations – 281.6 million for Indonesia and 33.5 million for Malaysia.

“Malaysia’s planned capacity is likely to cater to regional demand, while Indonesia’s infrastructure is primarily driven by domestic requirements,” said Wong.