The world’s largest technology firms are flocking to Southeast Asia to build data centres at a time when demand for infrastructure and computing power to enable artificial intelligence (AI) is rapidly rising.

The new investments are expected to contribute to the region’s economies by creating skilled jobs in data centre construction, engineering and maintenance, while also developing specialised talent in AI, cyber security, and data science and management.

The investments will also improve the region’s digital infrastructure, allowing small businesses and large institutions to store their data locally, significantly reducing downtime while increasing data sovereignty.

With AI-supported innovations such as searches on ChatGPT now requiring at least four to five times more processing capacity compared with traditional internet searches, data centre demand is expected to grow at around 20 per cent a year for the next five to seven years, analysts at Maybank noted in an October report.

Data centres are large facilities built to accommodate servers, data storage systems and networking equipment that support better internet services and telecommunications.

This, in turn, enables popular online activities such as gaming, live-streaming and investing, as well as more advanced technologies like cloud computing and AI.

Thanks to its lower costs, power availability and geopolitical neutrality, South-east Asia is emerging as an ideal region for tech operators to establish a data centre base, with the top five countries being Singapore, Malaysia, Thailand, Indonesia and Vietnam.

While Singapore is the preferred destination for hosting data centres due to superior infrastructure and a stable regulatory regime, the Republic had imposed a three-year halt on data centre construction between 2019 and 2022 to assess its impact on the environment.

Malaysia seized the bulk of new data centre investments entering the region during that period, and now expects facilities with around one gigawatt (GW) of power capacity to come online over the next two years.

That is double the existing data centre capacity it currently has.

Another 3GW has also been announced and, if approved, will be gradually rolled out in the next three to five years, RHB Bank said.

In comparison, Singapore’s data centre capacity currently stands at around 1.4GW.

Among those channelling capital into Malaysia are tech titans like Microsoft, which said in May that it will invest US$2.2 billion (S$2.9 billion) over the next four years to build cloud and AI infrastructure in the country.

Amazon Web Services (AWS) in August announced plans to invest an estimated US$6.2 billion to set up a data centre and cloud region in Malaysia.

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The cloud service provider is also developing a similar region in Thailand. It revealed plans in 2024 to invest US$5 billion in data centres in the country over the next few years, making Thailand its fourth AWS region in Asean after Singapore, Indonesia and Malaysia.

In September, Google said it would invest US$1 billion to build a data centre and cloud region in Thailand, which has so far seen around US$9 billion committed by operators, according to analysts at Morgan Stanley.

By 2028, RHB expects Malaysia to account for over half the data centre processing power across the top five South-east Asian markets, with data centres in Johor making up the bulk of inventories at over 2.3GW.

That could put the Malaysian state in close competition with Singapore as a data centre hub for the region.

After partially lifting its moratorium in 2022, Singapore awarded around 80MW of new capacity to Equinix, GDS, Microsoft and an AirTrunk-ByteDance consortium in July 2023. In May, the Government announced that at least 300MW of data centre capacity may soon be provided.

Still, the Republic has signalled that it will be more selective when awarding new capacity moving forward.

Speaking at a conference in May, then Senior Minister of State for Communications and Information Janil Puthucheary said data centres are collectively Singapore’s biggest indirect carbon emitter.

He added that existing data centres currently contribute to 82 per cent of the information and communications sector’s carbon emissions, and 7 per cent of the country’s total electricity consumption.

However, Dr Janil said Singapore may still award an additional 200MW of capacity to operators that are able to tap green sources of energy to run the facilities, and will provide schemes and incentives to support such investments.

Mr Dedi Iskandar, head of data centre solutions at property investment adviser CBRE, asked that the authorities provide more clarity on this front.

“The industry does not have a clear picture of what’s next after the additional capacity was announced in May, or when we can bid or how. We haven’t seen this information coming, and that has created uncertainty,” he said.

“When data centre operators have no line of sight, they cannot make plans to invest in Singapore.”

Mr Dedi said that while Singapore is still the preferred destination for hosting mission-critical computing applications, Johor, which still struggles with issues like talent and water shortages, is improving quickly.

The highest risk for Singapore arises when the price gap for building and operating a data centre compared with Johor becomes too significant, and when the quality of data centre services between the two markets narrows, he said.