Data centre sector in Southeast Asia emerges with opportunities

The region is exploring growth drivers, investment potential, and legal considerations

The data centre sector in Southeast Asia is experiencing significant growth, driven by cloud computing, AI, e-commerce, and new technologies like IoT, edge computing, and 5G. Investors, including traditional players and new entrants like pension funds and sovereign wealth funds, are recognizing the lucrative opportunities in the region. However, Data Centre Solutions noted how investing in Southeast Asian data centres comes with legal challenges such as data protection regulations, cross-border data transfers, sustainability concerns, cybersecurity, and understanding local policies.

Additionally, factors like location proximity to users, compliance with data sovereignty regulations, and green initiatives are important considerations. Governments are implementing stricter energy efficiency standards, and cooling innovations like floating data centres and harnessing cold energy are emerging. Incentives offered by local governments can offset upfront costs but should be evaluated carefully against infrastructure limitations and tax compliance requirements.

MHI magazine Spectra discussed how Johor, Malaysia, and Batam, Indonesia, are becoming attractive destinations for data centre operators due to the rising demand for digital services in Southeast Asia. The increasing adoption of cloud services and the importance of digital services during the COVID-19 pandemic have fueled this demand. 

Related: Johor takes on USD3.3 billion data centre project, set to become the largest in the region

The region’s large population, particularly tech-savvy youth, is driving organic growth of 10-15 percent in the data centre sector. Singapore, facing a moratorium on new data centres, has led operators to expand into neighbouring countries. The collaboration between governments and the industry has facilitated the establishment of data centres in Johor and Batam, benefiting from their proximity to Singapore.

Indonesia is emerging as a prominent data centre hub in Southeast Asia due to its rapidly growing digital economy, according to Industrial Transformation India. The government’s active promotion of the industry has led to major projects underway. Factors driving this growth include the increasing demand for cloud computing services and Indonesia’s large and growing population, which offers a market for data-intensive applications. 

The government’s supportive regulations and incentives have attracted investment in the industry. Challenges faced by the data centre industry in Indonesia include a shortage of skilled talent, power outages, and developing regulations. Nevertheless, Indonesia is well-positioned to become a significant data centre hub in Southeast Asia, supported by its population, strategic location, and government backing.

The Property Report editors wrote this article. For more information, email: [email protected].