Malaysia Faces Growing Scrutiny as Data Centre Boom Raises Resource Concerns
Malaysia’s rapid rise as Southeast Asia’s fastest-growing data centre hub is attracting increasing scrutiny as concerns over electricity, water and environmental sustainability reshape the industry’s expansion across emerging Asia.
After overtaking Singapore in data centre growth, Malaysia is witnessing growing public debate over the impact of large-scale facilities on local communities. Protests in Johor, the centre of the country’s data centre boom, marked the first demonstrations of their kind, while discussions in Selangor have become increasingly politicised.
“Two years ago, it was just about building capacity,” said Cheam Tat Inn, managing director of the Malaysian arm of U.S. data centre operator Equinix.
“The conversation today is more like, How will you use power? Are you looking at renewables? They want to see how you’re going to grow sustainably and responsibly.”
Sustainability Becomes a Key Requirement
The shift reflects changing priorities in a region that has actively courted hyperscale technology companies with lower land prices and affordable electricity in a bid to attract investment in artificial intelligence infrastructure.
Malaysia now finds itself in a position similar to that previously experienced by established data centre markets such as Ireland, the Netherlands and Singapore, where rapid industry growth prompted concerns about competition for water and electricity with households and agriculture.
Despite the increasing scrutiny, hyperscale technology companies, together with data centre developers and operators, continue to invest heavily in facilities needed to support expanding AI services. However, they are placing greater emphasis on sustainability to maintain public support while governments tighten environmental standards.
Several operators have already adopted measures to reduce their environmental footprint. In Johor, China’s ZDATA said its facility relies entirely on treated wastewater and is finalising a renewable energy agreement with state utility Tenaga Nasional. Meanwhile, Japan’s NTT said its data centre will use a closed-loop cooling system to minimise water consumption. Bridge Data Centres, backed by Bain Capital, said solar energy now provides more than half of the electricity used at its Johor operations.
Chris Howard, executive director at consultancy JLL, said demand for data centres continues to grow as consumers rely on faster digital services. However, he noted that local communities often remain concerned about increased energy consumption, water use and the visual impact of large industrial buildings.
According to JLL, resident objections, together with delays in securing grid connections and infrastructure equipment, contributed to project delays of at least three months for 57% of data centre developments worldwide last year.
States Tighten Approval Standards
Johor now requires new data centre projects to demonstrate how they will source electricity, with renewable energy increasingly becoming a condition for approval.
Late last year, the state also prohibited two categories of highly water-intensive data centres capable of consuming up to 50 million litres of water each day.
Selangor has taken a different approach. Rather than banning projects, the state is assessing proposals against international standards for energy and water efficiency.
Ng Sze Han, Selangor’s executive councillor for investment, trade and mobility, said developers must also ensure that at least 30% of project content comes from local industries, including integrated circuit design and cooling technologies.
“These are highly capital-intensive projects, but historically they have delivered limited spillover to the local economy,” Ng said.
Earlier this year, the opposition Socialist Party criticised a proposed 1.75 billion ringgit hyperscale data centre project, arguing that it favoured corporate interests over local communities.
According to Savills director Nicholas Tuan, tighter regulations in Malaysia may encourage investors to consider other regional markets.
He said Thailand is already attracting increased interest, particularly for large-scale campuses planned in the country’s south. Nevertheless, he added that Johor remains one of the region’s most attractive locations because of its reliable infrastructure, government support and available resources.
Johor Remains a Major Investment Hub
Johor benefited significantly from Singapore’s moratorium on new data centres between 2019 and 2022, attracting around $35 billion in investment from companies including Amazon, Microsoft, Tencent and Alibaba.
Although approval processes have become stricter since 2024, JLL estimates that Johor’s planned data centre capacity, including projects under construction and in development, will increase eightfold to approximately 7,000 megawatts.
Malaysia’s central bank estimates that a 50-megawatt data centre can consume as much water as 2,200 households each day and as much electricity as 22,000 households.
Public opposition reached a turning point in February when residents of Iskandar Puteri protested against construction of ZDATA’s planned 300-megawatt data centre complex.
Some residents expressed concerns about pressure on local water supplies, reporting reduced water pressure before the facility became operational. ZDATA said its development was not responsible for those issues.
Residents also complained about dust generated during construction, prompting developer Tropicana Firstwide to provide two free car wash facilities for the surrounding community.
However, not all concerns relate to infrastructure or utilities.
“I chose to buy a house here because of the greenery and the hills behind the property,” one Iskandar Puteri resident said. “Now the land has been levelled for the data centres.”
With inputs from Reuters
