Further Upside From the Data Centre Industry

The data centre (DC) sector in Malaysia is undergoing significant expansion, driven by substantial investments and strategic initiatives. According to the Investment, Trade and Industry Minister, Tengku Datuk Seri Zafrul Tengku Abdul Aziz, Malaysia has attracted at least RM76bn in DC investments between 2021 and March 2023, underscoring the sector's rapid growth. From 2021 to 2026, the Malaysian DC market is projected to grow at an average annual rate of 16%, or USD2.1bn per year. This strong growth positions Malaysia as a key player in the regional DC market. The surge in artificial intelligence and content consumption, which demand extensive data storage and computational power, is expected to further accelerate DC growth. We anticipate that the demand for new DC setups in Malaysia will remain robust over the next five years due to the increasing need for sophisticated data infrastructure. This outlook is supported by government tax incentives aimed at attracting foreign investment to new DC developments in the Klang Valley, Johor, and potentially Sarawak and Kedah regions.

Strategic Pathways to Growth

Malaysia's strategic efforts are crucial in propelling its DC industry forward. The nation aims to become a regional hub for DCs by capitalising on its strategic location, lower operational costs, and government support. Key government initiatives focus on enhancing digital infrastructure, including the rollout of 5G technology, expanding fibre connectivity, and integrating renewable energy sources to power DCs. These measures are designed to create an optimal environment for DC operations and attract major international technology companies.

More MNCs Are Onboarding

Global tech giants like Microsoft, Amazon Web Services (AWS), Alibaba, Huawei, Nvidia, and Google are making significant investments in Malaysia, underscoring the country's growing importance in the data centre industry. AWS, for instance, has pledged RM27.6bn to establish a cloud region in Malaysia. This significant investment will greatly enhance the nation's DC capacity and capabilities. These projects are not only propelling the sector's growth but also positioning Malaysia as a preferred destination for hyperscale DCs.

Capacity Is Growing, So Is the Future Outlook

According to an article by EdgeProp, the DC capacity in Malaysia is on track for significant expansion, with projections indicating an increase from 195MW to approximately 607MW by 2025. This growth is fuelled by substantial investments and rising demand for co-location services, underscoring the need for robust and scalable data storage solutions. As the demand for digital services and cloud computing continues to surge, Malaysia’s increasing DC capacity will be essential to meeting these needs.

With the average construction cost of a DC in Malaysia ranging from RM35mn to RM50mn per MW, as outlined by the Research and Market’s report, the projected 607MW expansion translates to a gross construction value of approximately RM21.2bn to RM30.4bn. This substantial investment is expected to benefit local players, particularly those in the construction sector and related industries involved in building DCs.

Source: TA Research - 18 Jul 2024