Rising data centre ability
Segment to spur investments into property market
MALAYSIA’S growing data centre segment has been attracting a steady flow of investments.
This, say experts, is set to spur the local property market, especially in Johor, which has seen a substantial growth in investments for data centres.
Zerin Properties chief executive officer Previn Singhe says that from a real estate investment standpoint, the data centre segment is increasingly viewed as a highgrowth potential area.
“With the exponential growth of data usage and cloud services, data centres are considered critical infrastructure with long-term relevance.
“This sentiment is reflected in the increased investment and development activities in this sector, attracting both local and international investors,” he tells Starbizweek.
Previn adds that the data centre market offers a compelling value proposition, characterised by steady demand, long-term leases and resilient income streams.
“As such, it is seen as a strategic addition to diversify portfolios, especially for investors looking to capitalise on the digital economy’s expansion.
“The property industry acknowledges the technical and operational nuances of developing and managing data centres, but is keen on navigating these challenges, given the lucrative prospects.”
According to the Investment, Trade and Industry Ministry, of the Rm144.7bil approved digital investments between 2021 and 2023, data centres made up Rm114.7bil.
KGV International Property Consultants research head Tan Wee Tiam says Johor is expected to attract Rm17bil in new data centre investments in 2024.
Tan says Johor’s position as a leading destination for investment in data centres can be attributed to a 2019 decision by Singapore to enforce a moratorium on building new facilities over sustainability concerns.
“Even though Singapore lifted the moratorium in 2022, more stringent conditions were imposed, which includes a 60 megawatts (MW) cap to enable the island republic to meet its carbon goals. Johor continues to benefit from the spill-over from this data centre investment.”
Coupled with Johor’s proximity to Singapore, availability of large tracts of suitable land at competitive prices, superior infrastructure, relatively affordable power and water tariff, good cyber-security framework and availability of skilled educated workers, Tan notes that many multinational corporations (MNCS) started to choose Johor as an alternate investment location.
“In Johor, the data centres are currently
“Malaysia’s relatively stable environmental conditions reduce the risk of natural disasters, making it a favourable location for data centres.” Previn Singhe
mostly in the Iskandar Puteri corridor (Nusajaya Tech Park and Nusa Cemerlang Industrial Park) and Sedenak-kulai corridor (Ibrahim Technopolis, formerly known as Sedenak Tech Park and YTL Green Data Centre Park).
“Judging from the number of new data centres that are coming on stream, it appears that the authorities have responded fast and managed to ramp up the power and water capacity to cater to the accelerated demand.”
Previn says that at present, there are about 300MW of live data centres in Malaysia, with an additional 160MW under construction, 770MW committed and 2,100MW still in the planning or early stages.
“That means there will be about three gigawatts of incoming supply of data centres,” says Previn.
In terms of the established data centres, Previn says that they are mostly split between the Klang Valley and Johor Baru.
“Within the Klang Valley, there are about 100MW of live data centres; 30MW are under construction; and about 1,100MW are still in the planning stage.
“Johor Baru is also definitely making itself a bigger hub with 185MW of live data centres; 485MW are still under construction; 490MW are already committed and 825MW are still in the planning stage.”
Meanwhile, CGS International, in a recent report noted that there has been a strong flow in new orders for data centres, semiconductor factories and industrial warehouses in Johor.
“A global data centre report by DC Byte last month flagged Johor as the fastest growing market within South-east Asia, with over 1.6 gigawatts of total supply as of February 2024, while Cyberjaya continues to see interest.
“Stripping out early-stage capacity (which is more speculative), we estimate potential cost of Us$7mil to Us$9mil per MW to construct a data centre, which could translate into construction works of Rm26bil to Rm33bil in Johor alone over the next few years.”
Rising demand
Going forward, at least in the next few years, Tan says there is a lot of demand from the high-tech industries, such as those catering to ecommerce, cloud-based services and artificial intelligence.
“How much investment we can capture from this specialised sector would largely depend on our ability to match the demand with the required resources, such as suitable land parcels, capacity of power and water.
“We believe the authorities are mindful of the risk of power outage due to overcapacity and other related social and environmental costs involved.”
Tan adds that the relevant authorities would want to avoid getting investments at the expense of other sectors, such as manufacturing, residential, office and retail.
“In short, it is crucial to strike a balance between attracting the much-needed investment, versus the cost of environment and economic sustainability.”
Previn says that there are several key factors propelling the demand for data centres in Malaysia.
“Firstly, the digital transformation of businesses, driven by the Covid-19 pandemic, has led to an increased need for cloud services and data storage.
“Secondly, Malaysia’s strategic geographical location in South-east Asia makes it an attractive hub for companies looking to tap into the Asean market, thus driving up demand for local data centre infrastructure.”
Additionally, Previn says that the Malaysian government’s supportive policies, including incentives for technology investments and a focus on strengthening the digital economy, play a significant role.
“Malaysia’s relatively stable environmental conditions reduce the risk of natural disasters, making it a favourable location for data centres.”
Going forward, Previn says there is no doubt that the demand for data centre services will continue to escalate.
“Factors such as the national push towards digitalisation, the rollout of 5G networks and the growing presence of international tech companies in Malaysia are expected to fuel further growth.
“We anticipate not just an increase in the number of data centres, but also an expansion in their capacity and technological advancement.”
Not without challenges
Subject to the availability of necessary resources (such as suitable land and skilled labour), infrastructure, Tan says getting data centre operators or owners has started to become a popular strategy employed by industrial park developers.
“As the upfront investment in terms of land and construction cost is huge, developers and turn-key contractors can get faster payback.
“We understand that the availability of sufficient power and water capacity has been the major factor restraining many industrial parks from getting data centre operators to set up their plants.”
Following conversations with contractors, CGS International says key requirements from data centre owners are speedto-market with minimal execution risk, as well as expertise in building information systems while having a vertically integrated construction outfit.
Tan meanwhile says real estate investment trusts and private equity funds could be keen to buy data centres and lease it back to the operators on a long-term lease.
“Data centres run by blue-chip MNCS with reasonable yields would be a sexy story for investors,” he says.