Asia-Pacific’s data centre industry is entering a new phase of consolidation and AI-driven expansion, with Malaysia and Australia emerging as key beneficiaries as hyperscalers and infrastructure investors prioritise large-scale, AI-ready facilities amid tightening supply constraints across the region.
According to a new regional industry report released on May 11, APAC’s data centre capacity is forecast to expand from 11GW in 2025 to 15GW by 2028, representing average annual growth of 11%, fuelled by accelerating artificial intelligence adoption, cloud expansion and digital transformation across major economies.
The report said the region’s next wave of growth will increasingly favour markets capable of supporting energy-intensive AI workloads, securing renewable power access and attracting large-scale institutional capital.
Malaysia was identified as one of the region’s strongest beneficiaries, particularly through the rapid rise of Johor as a regional data centre hub. The report noted that Malaysia’s policy shift towards prioritising AI-related facilities has reinforced its position as a destination for high-value digital infrastructure investments.
Prime Minister Anwar Ibrahim had announced earlier this year that Malaysia had stopped approving non-AI-related data centre proposals since 2024, signalling a move towards larger and more capital-intensive projects aligned with the country’s AI ambitions.
The report stated that Malaysia’s pipeline now consists almost entirely of AI-focused projects, with approximately 4.6GW of planned and under-construction capacity. This has increased barriers to entry and strengthened the dominance of well-funded global operators and private equity-backed platforms.
Major international technology firms including Microsoft and Google have each committed more than USD2 billion in investments into Malaysia’s data centre ecosystem under the country’s MyDigital initiative and Data Centre Framework introduced in October 2025.
However, the report noted that Malaysia has adopted a sustainability-first approach, rejecting nearly 30% of proposed data centre projects that failed to meet environmental standards relating to water and electricity consumption.
Across APAC, power availability and renewable energy integration are increasingly becoming more important than traditional fiscal incentives in determining competitiveness.
The report highlighted Singapore’s stricter sustainability requirements, including mandates for operators to achieve low power usage effectiveness (PUE) ratings and source at least 50% green energy for new projects. These policies have continued to divert overflow demand into neighbouring Johor and Indonesia’s Batam region.
Australia was also identified as a major AI infrastructure growth market, particularly in Melbourne and secondary cities such as Darwin and Perth, where operators are expanding to avoid land and power constraints in Sydney.
Australian data centre demand is increasingly driven by AI applications requiring higher-density racks and advanced cooling systems, with major operators such as AirTrunk and NEXTDC aggressively expanding capacity.
Meanwhile, emerging Southeast Asian markets including Indonesia and Thailand are expected to absorb non-AI and overflow demand displaced from more saturated hubs.
Thailand’s government has introduced renewable power procurement reforms and incentives under its Thailand 4.0 initiative, while Indonesia continues leveraging tax holidays and special economic zones to attract hyperscaler investments into areas such as Nongsa Digital Park in Batam.
India was described as one of the world’s most aggressive markets for data centre investment promotion, with New Delhi proposing tax holidays extending to 2047 for foreign cloud service providers using Indian data centres.
The report also highlighted growing geopolitical and sustainability risks facing the sector, including power shortages, water scarcity and supply chain vulnerabilities linked to semiconductor export restrictions and rising electricity demand from AI workloads.
Despite these challenges, the APAC data centre market continues to attract strong investor interest, supported by major acquisitions and financing deals.
Among the largest transactions was Blackstone’s USD16 billion acquisition of AirTrunk in 2024, while Singtel and KKRcompleted a USD6.6 billion takeover of STT GDC in Singapore earlier this year.
The report added that sustainability credentials, renewable integration and execution capability are expected to become the defining competitive advantages for operators as APAC’s digital infrastructure race accelerates over the coming years.
