KUALA LUMPUR: Malaysia's data centre ambitions are gathering pace, with 84 projects approved nationwide as of July, including 27 flagship developments carrying an estimated investment value of RM225.97 billion and the potential to create 4,053 jobs.
But as billions of ringgit pour into the sector, the challenge is no longer just attracting investors. It is ensuring the projects deliver lasting economic benefits without placing excessive pressure on the country's electricity, water and infrastructure resources.
Between 2021 and mid-2025, MIDA approved RM144.4 billion in data centre and cloud computing investments.
Olive Tree Property Consultants chief executive officer Samuel Tan said the rapid expansion marked a significant shift in Malaysia's economic development, with construction activity accelerating across Johor, Selangor and Negri Sembilan.
"It is an economic shift decades in the making and, with construction gathering pace across three key states, Malaysia's digital future is no longer a vision. It is being built, powered and staffed by Malaysians today," he told NST Property.
The 27 flagship developments are being fast-tracked under the Data Centre Task Force (DCTF), with Johor accounting for 16 approved projects, followed by Selangor with 10 and Negri Sembilan with one.
Digital Minister Gobind Singh Deo said one facility was already operational, while the remaining projects were under construction.
To ensure local businesses benefit from the investment wave, the government has imposed a minimum local content requirement of 30 per cent for every DCTF-approved project.
However, the scale of investment has intensified debate over whether the economic returns justify the substantial resources required to build and operate these facilities.
MALAYSIA MUST REFINE ITS DATA CENTRE STRATEGY
Zerin Properties said concerns raised in a recent commentary, "Data Centre Missteps?", published in a recent English daily, about Malaysia's aggressive pursuit of data centre foreign direct investment (FDI), reflected the challenges of managing a rapidly expanding industry.
The commentary questioned the government's approach, citing pressure on resources, limited direct job creation and the Finance Ministry's push to reprice data centre investments as evidence of a flawed policy.
While these concerns warranted attention, Zerin Properties' founder and chief executive officer, Previndran Singhe, said Malaysia's economic history showed that the country had repeatedly entered new resource and industrial growth cycles before refining policies to capture greater domestic value.
Malaysia's development has been shaped by successive industries, from tin and rubber to palm oil, oil and gas, and manufacturing. The electrical and electronics sector subsequently deepened the country's integration into global supply chains.
"In every case, the early phase was lopsided: capital intensive, foreign controlled, and concentrated in a narrow set of benefits, before we recalibrated and captured more value downstream.
"Data centres are simply the latest version of that same story. It is a capital-intensive, resource-intensive industry that arrived in Malaysia because of genuine structural advantages, faster than our policy settings were calibrated to manage it.
"The answer to that mismatch was never to walk away from the industry. It is the same tool Malaysia has reached for every time before: recalibrate the terms as the market matures," Previndran said.
MALAYSIA'S GEOGRAPHICAL ADVANTAGES REMAIN SIGNIFICANT
Previndran said Malaysia's appeal to data centre investors rested on structural advantages, including land availability, access to electricity and water, and proximity to Singapore.
Singapore's constraints on land and power capacity for new large-scale facilities have created opportunities for Malaysia to accommodate additional digital infrastructure while remaining close to the city-state's financial and technology ecosystem.
"Our geography puts us within the low latency radius that matters for data centre siting relative to Singapore's finance and technology demand, at a time when Singapore has largely run out of land and power headroom for new large-scale facilities.
"A capacity constrained neighbour with deep demand, sitting next to a country with the land and energy base to build at scale, is a structural and durable advantage. It is not temporary arbitrage."
Previndran said the reported RM145 billion in committed data centre investments should not automatically be interpreted as evidence of a policy mistake.
Instead, the commitments demonstrated that investors recognised Malaysia's competitive position, even as policymakers worked to ensure the country received an appropriate return.
He said the challenge was one of timing, with investments arriving before pricing mechanisms, infrastructure safeguards and policies to capture more domestic value were fully developed.
Concerns over electricity tariffs, water security, lending concentration and relatively low direct employment during the operational phase remained legitimate, he said.
Data centres require substantial electricity and cooling resources but typically employ fewer permanent workers than many traditional manufacturing facilities. Rapid development can also strain local infrastructure if capacity fails to keep pace.
These challenges called for stronger approval conditions rather than a wholesale retreat from the industry, Previndren said.
Data centres in Johor, Selangor and Negeri Sembilan consumed about 28.68 million litres of water daily as of January 2026, with projected demand linked to developments in the three states expected to reach 445.04 million litres a day between 2025 and 2030.
FOUR PRIORITIES TO MAXIMISE ECONOMIC BENEFITS
Previndran outlined several measures to ensure future data centre investments deliver stronger economic and social returns.
First, investment incentives must evolve with market conditions.
Tax concessions and preferential utility arrangements should be reviewed as resource costs, infrastructure constraints and project contributions change.
New approvals should reflect prevailing electricity and water availability rather than assumptions made when the investment pipeline was first established.
Where existing agreements permit renegotiation, adjustments should be transparent and commercially credible. Future projects should also have clear review mechanisms from the outset, providing greater certainty for investors while protecting the public interest.
Previndren said the Finance Ministry's push to reprice data centre investments highlighted the need for a systematic approach rather than ad hoc adjustments.
Second, new capacity must support the energy transition.
Malaysia should accelerate the development of grid-connected renewable energy and strengthen its electricity infrastructure to accommodate rising demand.
Previndran also called for serious evaluation of next-generation energy options, including small modular nuclear reactors, as they become commercially viable.
"Malaysia should be accelerating grid-connected renewables and seriously evaluating next-generation baseload options, including small modular reactors as they become commercially viable, instead of leaning on conventional capacity expansion alone.
"Tying new data centre approvals to renewable procurement commitments, as some competing jurisdictions already require, pushes the incentive structure toward genuinely additive green capacity rather than simply reallocating what already exists," he said.
Third, water efficiency should become a baseline requirement.
Cooling technologies differ significantly in their water and energy requirements. Immersion cooling and other liquid-cooling systems can improve efficiency in suitable applications, while well-designed closed-loop systems can reduce water consumption.
However, Previndran said no single technology was appropriate for every facility, and lower-water cooling systems must also be assessed for their electricity use and overall environmental impact.
"Mandating the best available cooling technology for new approvals, rather than grandfathering older, thirstier designs, should be a baseline requirement, not an aspiration," he said.
Fourth, planning and environmental safeguards must keep pace.
Previndran said complaints about noise, water pressure and disruption to nearby communities highlighted the need for better planning and enforcement.
Minimum separation distances from residential areas, environmental impact assessments where required, enforceable operating conditions and meaningful community consultation should form part of a more rigorous approval framework.
Site selection must also take into account the capacity of electricity networks, water infrastructure, roads and other essential services, he said.
Turning investment commitments into national gains
Previndran said the RM145 billion in committed investments represented a significant opportunity, but the headline figure alone did not establish the ultimate economic benefit to Malaysia.
The priority was to ensure that investments translated into productive domestic activity, skilled employment, local procurement, technology transfer and sustainable economic gains.
"It is leverage we have not yet fully used. Malaysia entered this cycle, as it has entered every prior resource cycle, ahead of its own regulatory readiness. The mistake would be to conclude from that timing gap that the industry itself was miscalculated.
"The more useful conclusion, and the one the Finance Ministry's own "repricing" comment quietly reaches, is that our incentive and planning framework needs to catch up to the market, gate by gate, the same way it has after every cycle we have capitalised on before.
"The opportunity is real, and so are the challenges that come with it. The task is not to retreat but to adapt. Malaysia's challenge has never been attracting opportunity. Our challenge has always been learning how to capture a greater share of the value it creates. Data centres are simply the latest chapter in that story," Previndran said.
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