Malaysia is now the most attractive data center investment market

• Malaysia stands out as the top destination for data center investments.
• Malaysia’s strong GDP growth and the recent announcement of new cloud regions for Amazon Web Services (AWS) and Google have solidified Malaysia’s position as the leading SEA-5 market.

The technology industry recognizes the rapid growth of the APAC data center landscape, fueled by cloud computing, big data, and e-commerce demands. Recently, tier 2 markets have become popular locations for data center development, with cloud service providers prioritizing dedicated cloud regions over major hubs like Singapore and Tokyo. Currently, Malaysia stands out as the top destination for data center investments.

Knight Frank’s Data Centre Research Report MALAYSIA highlights that the Southeast Asia 5 (SEA-5) countries – Malaysia, Indonesia, Thailand, Philippines, and Vietnam – have garnered significant interest due to their large populations and untapped potential. The Knight Frank SEA-5 Data Centre Opportunity Index (SEA-5 Index) analyzes key markets within the SEA-5, providing insights into each country’s data center rankings compared to its peers.

Malaysia emerged as the leader, with a remarkable 113 MW of take-up in 2022, four times greater than the next highest market, Thailand, with a respectable 25 MW of take-up. This growth can be primarily attributed to the expansion in Johor, while Kuala Lumpur (KL) has also consistently reported double-digit take-up figures for the past three years.

The country’s strong GDP growth (8.7%) and the recent announcement of new cloud regions for Amazon Web Services (AWS) and Google have solidified Malaysia’s position as the leading SEA-5 market.

While markets like Vietnam, the Philippines, and Thailand are expected to climb the index as they become more attractive for data center investments, their lower take-up figures and limited cloud demand have placed them at the bottom of the rankings. Nevertheless, their standings are anticipated to shift as global data center operators and cloud service providers begin to establish a presence in these markets in the upcoming years.

Malaysia data center market is thriving because of the cloud

The impressive growth of Malaysia’s data center industry has occurred in two primary regions – Greater Kuala Lumpur (encompassing Central Kuala Lumpur and Cyberjaya) and Johor. Similar to global data center trends, the initial data centers in Malaysia were established within Kuala Lumpur’s Central Business District (CBD) and were relatively small. Over the past decade, however, increased interest in cloud services, government-backed initiatives, and the Singapore data center moratorium have contributed to Malaysia becoming one of the APAC region’s most dynamic data center markets.

Early colocation operators like CSF Group, Basis Bay, and VADS paved the way in Kuala Lumpur until NTT GDC entered the market as one of the first foreign operators, establishing a data center campus in Cyberjaya in 2010. Since then, most international operators have entered the Kuala Lumpur market through acquisitions.

In 2018, Bridge Data Centres, a subsidiary of ChinData, acquired the CX2 facility from CSF Group. The driving force behind this aggressive expansion by data center operators has been the introduction of cloud service providers, opening dedicated cloud regions to serve Malaysia’s population, and committing to deploying significant capacity across various data center facilities.

In 2022, Amazon Web Services (AWS), Microsoft, Google, and Telekom Malaysia received conditional approval to establish and operate hyperscale data centers and offer cloud services in Malaysia, with Chinese cloud provider Alibaba already present in the market.

The recent announcement by AWS that it will invest US$6 billion in the Malaysian cloud infrastructure market by 2037 highlights its commitment to hosting Malaysian data within the country, as opposed to other key data center hubs in the region, such as Tokyo and Singapore. While prominent Malaysian institutions like Petronas and Bank of Islam Malaysia already utilize AWS to some extent, establishing a dedicated cloud region in Malaysia will enable AWS to provide its customers with a comprehensive range of cloud services.

Initially, it was thought that AWS would enter the market using a mix of their own data centers and colocation deployments; however, it is now clear that they will depend exclusively on colocation during this first phase of expansion.

It’s worth noting that although Cyberjaya continues to be the top data center location for development in the Greater Kuala Lumpur area, emerging locations like Bukit Jalil and Petaling Jaya are experiencing a surge in demand from both customers and operators. These locations offer a less constrained power grid and increased geographical diversification compared to Cyberjaya, providing enhanced redundancy for data center clients looking to distribute computing loads across multiple locations.

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