Malaysia’s artificial intelligence (AI)-focused approval strategy will accelerate market consolidation in Johor, which is converging into an oligopolistic structure dominated by 3-5 well-capitalized platforms backed by large buyout funds, BMI Country Risk And Industry Research said last Friday.

The research house said in a note that combined barriers of high capital requirements, mandatory sustainability credentials and power constraints will become prohibitive for new entrants.

“Johor’s power infrastructure will face intensifying strain as AI data centers consume over 70 percent of electricity output growth through 2026, driving premium pricing for compliant facilities while accelerating displacement of non-AI workloads to secondary Southeast Asian markets including Indonesia, Thailand and the Philippines,” it noted.

Malaysian Prime Minister, Anwar Ibrahim, has announced that proposals for data centers in Malaysia unrelated to AI have been stopped since 2024, in the government’s efforts to favor approvals of larger facilities, focusing on advancing its AI capabilities.

According to BMI, Malaysia’s data center sector remains fiercely competitive, with undercapitalized platforms falling behind their well-funded counterparts.

The leading players are backed by large buyout funds, including Bridge Data Centers (backed by Bain Capital), AirTrunk (Blackstone), Yondr (DigitalBridge) and Princeton Digital Group (with preferred equity investment from Stonepeak).

This financial backing affords these firms a significant advantage in a market characterized by high capital requirements, BMI noted.

“This policy validates our view that Malaysia is prioritizing high-value, capital-intensive projects, formalizing the dynamic of only approving larger AI data centers that require more capital,

“Hence, consolidation among well-funded platforms continues as the barriers to entry into the Malaysian market, particularly within Johor, increase and favor large established players over new
entrant,” it added.

It is noted that the Prime Minister articulated a multi-jurisdictional energy procurement strategy, comprising participation in the proposed ASEAN Power Grid, a regional interconnection framework linking member-state infrastructure, alongside bilateral power import agreements with Singapore and domestic sourcing from Sarawak.

This reflects efforts to diversify supply channels and mitigate capacity constraints.

“This statement explains the rather bifurcated Southeast Asia data center market, where Malaysia’s capacity pipeline is virtually entirely AI-focused, with our estimates pointing towards 4.6GW of capacity (both planned and under construction),

“Hence, other markets within the region (Philippines, Vietnam) continue to see limited AI applications, where the pipeline likely points to digital transformation yielding enterprise demand,” said BMI.

However, the research house believes Indonesia, Thailand and the Philippines will look to capture displaced demand.

“We have noted that these markets were already attracting investment amid saturation and infrastructure bottlenecks in primary markets, with our view now narrow within the non-AI workloads,” said BMI.

It noted this policy will likely pose upwards pressures to the existing power challenges that Johor is experiencing, such that data centers will account for over 70 percent of electricity supplies in 2025-2026.

By favoring AI data centers, it said government officials are effectively choosing fewer but more power-intensive projects, placing greater strain on infrastructure.

“The Prime Minister’s emphasis on added value to the local communities, which aligns with concerns we identified about new power tariffs on facilities over 100MW potentially increasing costs by 10 percent to 14 percent,

“Relatively high rejection rates within Johor will largely be driven by a lack of adherence to sustainability standards, rather than AI applications and platforms are organically directed towards Johor, making sustainability credentials a mandatory rather than a competitive advantage,” said BMI.

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