Malaysia rides AI wave to capture data center investmentMalaysia rides AI wave to capture data center investment

Malaysia's data center sector is on a tear, with investment surging threefold in 2024. Data center firms committed 141.7 billion Malaysian ringgit (US$31.5 billion) in just the first ten months of last year, up from MYR46.2 billion ($10.3 billion) over 2023, property consultancy Knight Frank has found.

The bulk of this came from tech giants: $4.3 billion from Nvidia, $2.2 billion from Microsoft, $2.1 billion from ByteDance, $2 billion from Google, and $6 billion through to 2038 from AWS. The country is already the biggest data center player in southeast Asia, with 429MW of capacity, way ahead of the second biggest, Indonesia, with 93MW.

The underlying driver in this flood of investment is the colossal pool of cash flooding into AI. The ASEAN region, with its population of 700 million and fast-growing digital services, is an attractive target both for western giants and their Chinese counterparts.

But it is also due to the Malaysian government’s efforts to advance its digital economy. 

Critical factors

In particular, says Knight Frank, it has strengthened two factors "critical for the development of a robust data centre ecosystem" – the regulatory environment and sustainability.

For example, it is expediting power supply for data centers, reducing implementation time from three to four years to just 12 months. It has developed a scheme that allows renewable energy developers to access the grid. It has also promised incentives for AI data centers.

Separately, research firm Telegeography has ranked Malaysia's capital Kuala Lumpur as the world's fastest-growing city for digital infrastructure growth. It scored Kuala Lumpur ahead of 3,000 other cities for current and planned cloud regions, data centers and submarine cables.

Malaysia's data center sector is also likely to receive a further boost from the creation of the 3,571 square km Johor-Singapore special economic zone, agreed by the two countries earlier this week.

The digital economy is one of 11 industries targeted for investment in the zone, with the government offering special tax and other incentives. The Malaysian and Singapore governments are planning infrastructure funds to back companies setting up in the new region.