Malaysia is set to remain a clear outperformer in Southeast Asia’s data centre market, with Johor emerging as the country’s dominant AI infrastructure hub as hyperscaler investment, cross-border connectivity and the Johor-Singapore Special Economic Zone (JS-SEZ) drive the next phase of growth, according to BMI.
In its latest Malaysia Data Centre Overview, BMI said the maturation of the JS-SEZ should deepen integration with Singapore, while Malaysia’s lower-cost operating base and improving connectivity are expected to sustain hyperscaler commitments even as Singapore gradually eases its own supply constraints.
Malaysia currently has 125 data centres with 925.6MW of live capacity, alongside 2.0GW under construction and 3.1GW of planned capacity. BMI forecasts the country’s cloud spending at US$4.5 billion in 2026.
Johor dominates the expansion pipeline, with a combined 4.1GW of capacity under construction and planned, substantially ahead of Cyberjaya and Kuala Lumpur. BMI said proximity to Singapore initially drove the state’s rise, but demand has broadened to include hyperscaler investment, enterprise workloads and domestic cloud adoption.
The research house said Malaysia’s development pipeline is also shifting towards higher-value AI-ready projects, with non-AI proposals largely halted since 2024 in favour of larger facilities capable of supporting more capital-intensive deployments.
“Malaysia’s pipeline is becoming increasingly concentrated around AI-ready facilities,” BMI said, adding that this should support higher revenue potential per megawatt of capacity deployed.
However, the rapid expansion is creating increasing pressure on Malaysia’s power system.
BMI estimated that data centres accounted for around 20% of electricity output growth in 2024, with that share expected to rise to more than 70% in 2026 as new capacity comes online.
It noted that newly introduced tariffs for facilities above 100MW could increase energy costs by 10% to 14%, raising execution risks for large AI campuses and increasing the importance of dedicated power infrastructure, renewable energy access and credible water management.
BMI expects this pressure to encourage operators to diversify some future capacity into markets such as Thailand and Vietnam. However, it does not see this as displacing Johor’s position, but rather as a way for operators to reduce execution and country-specific risks while maintaining their core Malaysian presence.
Capital availability is also expected to become increasingly decisive. BMI said well-funded private equity-backed operators such as AirTrunk, Bridge Data Centres, Yondr and Princeton Digital Group have an advantage as AI-oriented facilities require significantly higher capital commitments.
Regulatory scrutiny is also tightening. Malaysia’s data centre policy is shifting from broad investment promotion towards a more selective model that places greater emphasis on power consumption, water usage, sustainability and infrastructure readiness.
BMI said Malaysia has reportedly rejected close to 30% of proposed data centre projects that failed to demonstrate sufficiently responsible power and water consumption practices, indicating that sustainability considerations are increasingly becoming a practical condition for project approvals.
