By Justin Heyes. 21st May 2024
The recent announcement of 35 acres of land in the i-TechValley being sold for RM210.3 million (US$2.5 million) to Digital Hyperspace Malaysia Sdn Bhd, should come as no surprise to those who have been paying attention to the APAC datacenter industry. A wholly owned subsidiary of Quantum DC (HK) Limited, the newly established Digital Hyperspace Malaysia Sdn Bhd, could be the first in a wave of established datacenter players from other markets making their move to capitalise on Malaysia’s regional potential.
Malaysia has emerged as the top destination for datacenter investment among the Southeast Asia five (SEA-5), with a growth in investment of 19.1% over the past year, as reported by Amy Wong, Executive Director for Santos Knight Frank Malaysia. This explosive growth can be seen most notably when looking at the rise in datacenters in the country, from a total of 10 in 2021, to 51 datacenters total in 2024, with 32 operational and 19 currently in construction.
The reason behind this can be seen through exploring the current state of play across the region. Looking at recent reports compiled by CBRE, it appears that with the ever-increasing demand for datacenter capacity, leading markets are beginning to struggle with the rapid pace set by new developments in technologies such as generative AI, and datacenter operators and developers are looking to new markets capable of hosting the expansion.
In North East Asia, the industry leader Hong Kong, is finding that foreign companies with an existing presence in the city are willing to expand and relocate with increased size, while operators continue to face a talent gap. In Japan, higher power, construction, and mechanical, electrical and plumbing costs are pushing down cap rates. Deals in 2023 were typically concluded at a cap rate of around 4%, a level set to decline this year. While in Korea, new datacenter developments in Greater Seoul face increasing challenges from limited power capacity and growing public opposition.
Looking at our neighbour Singapore, the established hub in SEA, there is currently no news about future allocations beyond the 80MW awarded by EDB-IMDA’s pilot DC-CFA exercised last July. Limited space and constraints on power supply mean that development interest is spilling over to neighbouring countries, with Malaysia being the most development ready and investment friendly. “It is no surprise that the Malaysian datacenter market might overpower other leading regions.” observes Fred Fitzalan Howard, Associate Director of Datacenter Lead, Knight Frank Asia.
The question then becomes, will Malaysia capitalise on this opportunity? As it stands Malaysia’s access to international data and catering to the market is through neighbouring countries Thailand in the north, and Singapore in the South. This is not an ideal position to be in.
Serious discussions need to be had in establishing new subsea cable routes that lead directly into the country, with strategic investment in subsea cable landing stations across the country Malaysia could be in a position where it has a viable way to service data coming from the North East Asia market, from both China and America leading on to Europe and an established hub still servicing data coming from the south via Singapore. The country also needs to face the spectre of resolving the extent of the cabotage exemption policy, which in the past has caused hesitancy in establishing subsea cables leading into the country.
While speculations have been made about Malaysia’s readiness to take on such a potential boon to the economy, these points about environmental factors and talent pools, seem to be reductive and circular. At the DDCI Convention held this month in Kuala Lumpur, Danielle Heinecke from the Australian High Commission, stated that the “digital sector is a priority for trade between Australia and Malaysia” and explained NABERS a national rating system that measures the environmental performance of Australian buildings and tenancies, with comprehensive guidelines on building green datacenters, which could be utilised to establish industry standards in Malaysia if adopted.
Also at the DCCI Convention, TPR Yoke Son Lee, Principle Assistance Director, of the Department Of Town and Country Planning (PLAN MALAYSIA), Ministry Of Housing and Local Government argued for the inherent value of the datacenter market pointing out that for every “RM1 billion investment in datacenter development, this translates to approximately 400-600 higher paying skilled jobs” an appealing factor in looking at attracting the educated youth in Malaysia to consider careers in the country instead of moving abroad.
The final question then is, if the country can capitalise on this opportunity, and the industry has identified Malaysia as the prime location to establish the main hub for the region, when do speculations on what needs to be done in order to realise this become action?