Malaysia’s Data Centre Pipeline Becomes Largest in Southeast Asia as Singapore Tightens Efficiency Rules

Singapore’s tightening of data centre efficiency standards is set to accelerate Malaysia’s emergence as Southeast Asia’s preferred destination for the next wave of hyperscale and AI capacity, according to JP Morgan. The investment bank said Singapore’s proposed power usage effectiveness (PUE) requirements of 1.25 to 1.3 would push operators to use electricity more efficiently in a market where land and power are scarce. In contrast, Malaysia’s 1.4 threshold for hyperscale projects is looser, helping it absorb capacity that Singapore cannot easily accommodate while still keeping projects within regional efficiency standards.

Singapore remains Southeast Asia’s premium data centre hub, with scarce resources supporting higher rents, while Malaysia is gaining from significantly lower development costs of $7 million per megawatt compared to $12 million per MW in the city-state, according to a report prepared by Yen Voo, JP Morgan’s head of Malaysia equities research. “In short, Singapore optimises every MW; Malaysia captures the next MW,” the report said, with JP Morgan maintaining positive views on both markets and naming Keppel DC REIT and Sunway Construction as its preferred Singapore and Malaysia exposures.

JP Morgan noted that Singapore has some of the highest rents among global data centre markets, running at $330 to $475 per kilowatt per month, or more than double those in Sydney and Northern Virginia. The bank said near-full occupancy and firm rental reversions point to a structurally tight market, while Singapore’s proposed Digital Infrastructure Act would extend efficiency rules to existing operators and push the sector towards a PUE of 1.3. New supply under Singapore’s second call for applications, amounting to 200MW at a PUE of 1.25, reinforces that future capacity growth will be approved only at higher efficiency levels.

With construction costs in Singapore among the highest in Asia Pacific, JP Morgan pointed to redevelopment of older assets like Keppel DC REIT’s SGP 1 as a potential source of 7 to 8 percent returns. Keppel DC Singapore 1 is a six-storey co-location facility with a five-storey annexe building and 225,956 square feet of gross floor area in Serangoon North Industrial Estate. Keppel DC REIT posted a 13.2 percent rise in first-quarter distribution per unit as distributable income climbed 20.7 percent to S$74.6 million, with portfolio occupancy at 95.6 percent and rental reversion of 51 percent. The SGX-listed trust completed its acquisition of the remaining interests in Keppel DC Singapore 3 and 4 in February, giving it full ownership of both assets, while also setting aside S$10.7 million from a preferential offering for costs tied to a 30-year land lease extension at Keppel DC Singapore 1.

Malaysia’s data centre pipeline has become the largest in Southeast Asia, with JP Morgan’s tracker showing 12,695MW of capacity through 2030, compared with 5,848MW for Indonesia, 5,119MW for Thailand and 1,679MW for Singapore. The Malaysian total includes 1,322MW of live capacity, 2,169MW under construction, 4,025MW committed and 5,179MW at an early stage. JP Morgan also singled out Kuala Lumpur-listed Sunway Construction as a Malaysia proxy, with the builder already working on five data centre projects across Johor and the Klang Valley.

Beyond land, power and speed to market, sustainability is becoming a gatekeeper for data centre development as communities grow more sensitive to water use, electricity demand, utility costs and local economic benefits. “Sustainability has become a requirement, not a differentiator,” JP Morgan said, adding that “social licence” is emerging as a key factor in execution speed as hyperscale deployment accelerates. Malaysia’s policy framework is aimed at addressing those concerns, with JP Morgan citing renewable energy access and investment incentives, including tax allowances of 60 to 100 percent of qualifying capital expenditure or preferential tax rates offsettable for up to 10 years.

The risks are no longer theoretical: Blackstone-owned QTS has abandoned plans to build its portion of a 2,100 acre data centre campus in Northern Virginia after years of local opposition. London’s Truman Brewery has become a flashpoint in a debate over whether a landmark East End site should be used for digital infrastructure or community needs such as housing and local businesses. In Australia, a petition targeting data centre expansion in New South Wales has called for a moratorium on further approvals, citing power, water, noise and heat concerns — underscoring JP Morgan’s view that Malaysia’s ability to pair growth with renewable energy, skills development, university links and SME participation may determine how long its lead can last.