Analyst said Thursday it sees Malaysia as an emerging data center hub in Asia, with supportive pro-business policies to attract and retain data center investors.

RHB Investment Bank Bhd said in a report that the unity government under Prime Minister Anwar Ibrahim is committed to further accelerating digital adoption in the country, which augurs well for the domestic data center industry.

According to the research house, the positive outlook of the data center sector is also supported by the New Investment Policy unveiled by the Ministry of International Trade and Industry (MITI) in Oct 2022, where the government is looking to boost economic complexity to spur high-value job opportunities.

It said the country’s large pool of knowledge and skilled workers portends a significant competitive advantage in catalysing greater foreign direct investments, which is crucial for the data center space.

Aside from Amazon Web Services (AWS) and Microsoft, which have committed to setting up cloud regions in the country, it said the likes of global data center names such as GDS, Equinix, and Yondr Group are also pouring in significant capital to construct their maiden facilities in the country.

According to RHB, Malaysia is seeing accelerated data center capacity plant-up, with hyperscalers making landfall.

It said Malaysia is seeing a raft of new/emerging data center investments with over 800MW capacity projected to come on stream in phases over the next five years, with lower land and energy costs as the key draws.

It said Singapore’s decision in early 2022 to calibrate new data center builds has been a blessing in disguise, with the likes of Equinix, AirTrunk, Yondr Group, and GDS Holdings locating their maiden facilities in Malaysia’s southern state of Johor.

More importantly, it views the setting up of cloud regions by Microsoft and AWS as a major coup with significant upsides for the domestic data center industry and the economy.

However, RHB also noted the key risks for the data center industry include energy costs and availability, internet bandwidth, the ease of doing business, political stability, and natural disasters.

“Increasing competition in the region is a growing risk, as it could reduce investments in the individual countries. Therefore, government incentives and regulations form a key part of investment decisions,” it said.

For data center players, it said sustainability will be a key issue in the long term, with the growing emphasis on energy efficiency.

New innovations present in newer data centers may reduce the demand for older, less efficient data centers, it said.

Overall, RHB opined that there is a rise of data centers in ASEAN.

It said the demand for hyperscale data center facilities in the region is being fuelled by strong investments and upgrades to new technologies and the transition to 5G networks.

It said ASEAN has become a major hotspot for data centers, thanks to accelerated digitalisation, accommodative policies, and the lower cost of land and energy, with content and over-the-top (OTT) providers focusing on the region’s population demographics and clamorous appetite for social media.

Consequently, it said hyperscalers are compelled to move closer to end-users (edge computing) to reduce latency with the setting up of new cloud regions.

With cloud and enterprise applications generating vast amounts of data with different formats and protocols, it opined that data centers will enjoy secular growth.

It noted data centers allow artificial intelligence (AI) to process massive datasets for training and inference, given their vast computing resources and storage.

As more organizations adopt AI into their operations, it said there is a corresponding rise in data generation.

Cited Frost and Sullivan, RHB said Malaysia, Singapore, and Indonesia are expected to account for a combined about 74 percent of the $5.7 billion ASEAN data center market by 2025.

Cited Arizton Advisory and Intelligence’s Mar 2023 report, it said the Indonesian data center market is expected to grow at a 6 percent compound annual growth rate (CAGR) between 2022-2028 to $3.1 billion.

The growth will be fuelled by rapid capacity expansion by hyperscalers, data localisation regulations, and as internet penetration closes the gap with its ASEAN peers, the research house said.

It also said Indonesia is already home to multiple cloud regions by Google, Alibaba, Amazon, Huawei, and Microsoft with Batam Island emerging as the new data center economic zone.

Meanwhile, it said Singapore’s calibrated data center growth is squeezing inventory resulting in overflow to neighbouring hubs.

While Singapore continues to be the epicentre of data center growth in South-East Asia, it said the more stringent conditions laid out for new builds have compelled investors to consider alternative sites/hubs in the region.

It also said the regionalization of the data center business is a key focus area for Singtel, with about 70MW capacity to be added over the next three to five years from its Indonesia and Thailand joint venteres.

It said the expansion will see its data center footprint expand to more than 170MW regionally from about 70MW in Singapore currently.

Malaysia’s MN Holdings partners China’s DC-Science to set up high performance data center in Malaysia