BMI Research highlighted the risk of some local data centres becoming non-compliant with the upcoming regulation.
PETALING JAYA: Future data centre investments into Malaysia may cool down once the government enforces sustainability-linked standards for local data centres.
The regulation is reportedly under consideration currently by the Energy Transition and Water Transformation Ministry.
In a note, BMI Research said some players may not be financially or technologically able to meet such requirements.
“Because of the latter reasons, some investors may forfeit entering the Malaysian data centre market altogether.
“As a result, we expect investors to potentially start diverting more projects towards neighbouring peer markets with abundant power sources and less sustainability-linked regulations.”
Within South-East Asia, the other favoured destinations for data centres are Indonesia and Thailand.
Investors are also exploring the Philippines.
BMI Research, which is a unit of Fitch Solutions, also highlighted the risk of some local data centres becoming non-compliant with the upcoming regulation.
The research firm was referring to data centre campuses that are already built or are being built.
“This could represent a (temporary) loss for some investors as they may be forced to bring their facilities up to compliant standards.
“A similar situation is already taking place in Germany as a result of the local Power Usage Effectiveness or PUE regulation and represents a key driver of market share reconfiguration over the medium to long term,” it said.
That said, BMI Research noted that data centre operators that feature strong and relevant sustainability-linked credentials will be in possession of a considerable competitive edge against some rivals.
The research firm also said it is unlikely that the upcoming regulation may translate into temporary data centre moratoria imposed in local zones like Johor.
“Potentially, data centre projects may begin to relocate internally towards new areas away from Johor and Kuala Lumpur.”
Currently, BMI Research said the majority of data centres being deployed in Malaysia are aimed at servicing Singapore-based customers, predominantly hyperscale ones.
Proximity to Singapore also means that data centre facilities can become cash flow positive even shortly after their announcement, which is a key incentive for investors to build in areas like Johor.
“This is because of the large addressable market of data-intensive industries located in Singapore and the impossibility to build high-density data centres in the city state, making some facilities in Johor fully leased to a single hyperscale tenant even before completion,” it added.
As per BMI Research’s estimates, between 2023 and the first half of 2024, investors active in Malaysia have announced a record amount of data centre projects that will cumulatively provide over 2.11GW of power.
In the first half of 2024 alone, investors have disclosed data centre infrastructure investments for a total of 850MW, close to 2023’s total of 1.26GW announced.
