KUALA LUMPUR: The implementation of a sustainability-linked regulatory framework could catalyse data centre developments in regions beyond Cyberjaya and Johor, such as Kedah, as investors seek to tap into new areas for digital hubs, according to BMI.

BMI, a Fitch Solutions company, believes this could create a scenario where these emerging regions either benefit from demand spillover from major markets or evolve into new digital hubs.

However, this strategy requires a higher risk tolerance, as investors may need to commit capital even when demand may not materialise immediately in these regions.

In a statement today, it noted that Kedah shares similar characteristics with Malaysia's major markets before they became saturated, making it an attractive option for investors.

Its strategic location enables it to capitalise on the submarine cables that run in Southern Thailand - a connectivity source which could be leveraged by data centres.

It said the real estate private equity firm, the Area Group, has begun construction of a data centre campus in Kedah.

"Investment into this area comes amidst above-average power, water and connectivity infrastructure presence, hedging against the potential introduction of regulation aimed at enforcing sustainability-linked standards for the domestic data centre industry.

"These are likely to be contributing factors to the movement of investment away from saturated domestic sub-markets such as Johor," it noted.

The first phase of the data centre campus will have an estimated gross development value (GDV) of US$2.4 billion (US$1=RM4.30), and the entire 63 hectares, upon completion, will have an estimated GDV of US$15 billion. 

Nevertheless, BMI still believes Johor will continue to be the leader in Malaysia in terms of upcoming information technology (IT) (critical power) load, with 268.5 megawatts (MW) of live capacity.

There are approximately 507MW of capacity under construction, and another 921MW planned for delivery over the long term.

However, it noted that flooding is a key environmental risk, posing a threat to the timeliness and cost implications of projects within the region.

"It is noteworthy that flooding is a large risk in many parts of Malaysia, however, investors may be enticed by the lack of structural constraints compared to the most saturated markets," it said.