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S&P estimates that the data center industry in Malaysia will require more than $20 billion in funding for powered shell infrastructure and equipment alone over the next three years
In sum – what to know:
Sustainable growth – S&P expects Malaysia to nearly triple data center capacity by 2030 as the country shifts from rapid expansion toward a more regulated, resource-conscious growth model.
Execution risks – Delays in planned power generation, grid upgrades, transmission networks or water infrastructure could become bottlenecks for future data center development.
Funding challenge – The sector may require more than $20 billion for powered shell and equipment investments alone over the next three years, creating a growing need for project finance and private credit.
Malaysia remains well positioned to become one of Southeast Asia’s largest data center markets, but the country will need to successfully navigate growing infrastructure and financing challenges to sustain the next phase of expansion, according to a new report by S&P Global Ratings.
In its report, ‘Malaysia’s Data Center Outlook: A Reset For Sustainable Growth’, S&P said the country is entering a new phase of development, shifting away from rapid capacity expansion toward a model focused on long-term sustainability, resource management and infrastructure readiness.
“Malaysia is slowing down to get ahead in data centers,” the report stated. “The country’s data center sector is in a reset mode—from rapid expansion toward a model that aims for sustainable growth.”
S&P expects Malaysia to nearly triple data center capacity by 2030. According to data from 451 Research by S&P Global, the country’s data center capacity is forecast to grow at a compound annual growth rate (CAGR) of approximately 32% over the next five years, down from the 67% CAGR recorded between 2020 and 2025.
The agency said Malaysia continues to benefit from several structural advantages, including proximity to Singapore, extensive submarine cable connectivity, lower costs relative to Singapore, and the availability of land. Rising cloud adoption, AI deployments, digitalization initiatives, and data sovereignty requirements are also expected to support continued demand.
Johor remains at the center of this growth story, having attracted significant spillover demand following Singapore’s moratorium on new data center developments between 2019 and 2022. The upcoming Johor-Singapore Special Economic Zone (JS-SEZ) is also expected to support further investment activity, according to the report.
While demand remains strong, S&P noted that authorities are tightening approval processes and introducing stricter sustainability requirements in an effort to better manage power and water resources. New regulations in Johor place greater emphasis on power usage effectiveness (PUE), water usage effectiveness (WUE), and utilization thresholds, while higher electricity and water tariffs are expected to encourage more efficient operations, S&P added.
The report said these measures should improve resource allocation and support more sustainable long-term growth, even if they modestly increase operating costs for developers.
A key concern highlighted by S&P is whether Malaysia can expand critical infrastructure quickly enough to support projected demand. The agency estimates that data centers could account for nearly 31% of Malaysia’s available energy demand by 2035, up from approximately 7% today.
To accommodate that growth, installed power generation capacity in Peninsular Malaysia would need to increase to around 40 GW by 2035, compared with roughly 27 GW currently. While S&P believes planned investments in gas-fired generation and renewable energy can help meet future demand, it warned that supply chain constraints, including shortages of gas turbines, could delay projects.
Grid connectivity remains another challenge. Although initiatives such as Tenaga Nasional Berhad’s Green Lane Pathway aim to reduce approval timelines for data center power connections to as little as 12 months, transmission upgrades and grid modernization projects will take time to deliver results, the report added.
To mitigate these risks, operators are increasingly pursuing direct power purchase agreements, behind-the-meter energy solutions, and alternative water strategies. Examples cited in the report include renewable energy agreements signed by Google and DayOne, as well as recycled water initiatives developed by operators including Bridge Data Centres and AirTrunk.
Financing may ultimately prove to be one of the sector’s most significant challenges. S&P estimates that Malaysia’s data center industry will require more than $20 billion in funding for powered shell infrastructure and equipment alone over the next three years, based on expected additions of roughly 2 GW of new capacity.
According to Jabez Tan, head of research at Structure Research, a combination of demand growth, favorable economics, and government support is driving investment around Kuala Lumpur, Cyberjaya, and Johor.
“Malaysia’s recent boom in data centre and AI infrastructure investment around Kuala Lumpur (notably Cyberjaya) and Johor is being driven by a mix of demand-side growth, strategic location advantages, supportive public policy, and competitive economics — making the country an attractive hub for hyperscale cloud, AI and digital infrastructure across Southeast Asia,” the analyst previously told RCRTech.
Tan said the growth is being fueled by increasing adoption of cloud services, AI workloads, and digital applications across the region.
