W. Media had an exclusive email interview with Sr Tan Wee Tiam and Sr Samuel Tan, Director and CEO (respectively) of Olive Tree Property Consultants, a property advisory firm, for a deep dive into the current state of the data center industry in Malaysia.
- Do you think the new US tariffs will affect the data center (DC) industry in Malaysia?
OT: We tend to agree that tariff has minimum impact on the DC industry now. In fact, Malaysia may benefit as a result of the imposition of punitive tariffs on China. U.S. tariffs on Chinese-made IT and data centre equipment such as servers, chips and routers have driven multinationals to diversify away from China. Malaysia is one of the key beneficiaries in the “China+1” strategy. Co-location and hyperscale operators see Malaysia as a relatively safe hub for Asia Pacific workloads that need to stay out of U.S.-China crossfire.
Having said that, if the U.S. slaps new tariffs or tighten things further, the supply chain for the DC could be disrupted and this could slow the timeline for DC take-off and complicate the whole set-up.
- Have enquiries slowed down on potential DC land purchase since the announcement of tariffs by Trump on April 2?
OT: The reciprocal tariff announcement was made only recently. It is still too early to know the full impact. However, from our experience and observations, the last two weeks do not seem to show any slowdown in enquiries to set up DCs in Johor.
On the contrary, the special package incentives announced by the Ministry of Investment, Trade & Industry under the Johor-Singapore SEZ will attract more players. Under this package, new investment (excluding land) with capital investment above RM1 billion will enjoy a tax rate of 5% for 15 years. Those with capital investment between RM500 million and RM1 billion will enjoy a tax rate of 5% for 10 years. Existing companies with new investment with capital investment (excluding land) above RM500 million relocating existing facilities to Malaysia (for a new business segment not expansion of existing products in Malaysia) will be given Investment Tax Allowance of 100% on the qualifying capital investment (excluding land) incurred within 5 years, against 100% statutory income. Knowledge workers will be subject to 15% flat income tax. These are apart from other incentives.
With these, more plants are expected to start or be relocated to JS-SEZ. However, due to uncertainties, these corporations may be more cautious and wait for tariff clarity to gradually unfold.
- Are there other areas targeted to be opened up for building data centers besides the usual hotspots like Sedenak, Johor; Cyberjaya, Selangor / Klang Valley and potentially Kedah?
OT: If we hazard a guess, Pengerang (oil & gas RAPID project) and Pasir Gudang could be two candidates. Their comprehensive power infrastructure and proximity to the sea could support energy- and water- hungry DCs.
- Which Malaysian corporates are you aware of which are considering entering the DC market?
OT: Apart from the usual names like YTL Power and telcos like Tenaga, Time Dotcom and TM, we are not aware of other new entrants. But we believe some telcos who are not in the game could be contemplating to enter the DC market.
All corporates are profit-oriented; given the lands, incentives, expertise and off takers, they will consider joining the DC market.
It is the government which is being cautious and wants to avoid overcrowding as well as ensuring sustainability. The DC industry should lead to more downstream benefits. By itself, it does not create many job opportunities. However, it is good optics to the world that Malaysia has upped the value chain moving towards advanced technology and soon the other advanced manufacturing which requires DC services such as AI-related manufacturing, automation, quantum computing, medical devices and pharmaceutical products would follow suit.
- How will Malaysia solve the massive water requirements needed for DCs in various locations in the peninsula?
OT: There are various ways Malaysia can deploy to solve the massive water requirements; some of them are as follows:
- Partnership with water utilities like SAJ Ranhill and other water agencies to ensure the planned facilities do not compromise local water supply.
- Build DCs in areas close to water bodies like rivers, lakes, coastlines.
- Using recycle or non-potable water to cool the DCs.
- Employ rainwater harvesting system for DCs.
- Recently KPRJ, an investment arm of the Johor State Government had signed a MOU to develop a floating solar farm on a water reservoir. This is a creative use of the utility to meet the water requirement.
- Shifting to air-cooled or chemical-based systems instead of water-based cooling. This will drastically reduce water usage. However, the cost for such air-cool or other systems could be a concern.
- Will more DCs follow the example of AirTrunk which has recently partnered with Johor and Federal authorities to use Indah Water Konsortium Sdn Bhd (‘IWK’)’s waste water to cool their DCs in Johor?
OT: This is possible. It will drastically reduce dependency on municipal potable water and this method is environmentally-friendly and sustainable. IWK has a lot of wastewater treatment plants across the peninsula. This offers scalable opportunities for more DCs to plug into this system. With the increasing strain on Malaysia’s water resources especially during dry seasons, this model helps mitigate risks of water shortages and supply disruptions.
- How bright is the prospect of Sabah and Sarawak becoming a hub for data centres considering that they have ample power and water supply?
OT: In view of the ample renewable power sources (e.g. hydropower in Sarawak) and strong water reserves in East Malaysia, Sabah and Sarawak have the potential to be data centre hubs. But we believe that can only materialize in the medium term.
There are inherent concerns that need to be ironed out such as:
- Lack of network connectivity, i.e. subsea cables, which will affect data latency especially for real-time applications.
- Sabah and Sarawak are considered “greenfield” locations; they are still lacking when it comes to supporting industries, skilled talent and proximity to international financial/services/technology hub. For example, Johor’s proximity to Singapore is an inherent advantage. Pioneer companies are likely to face higher setup costs.
Having said that, Sarawak has in recent years embarked on green energy initiatives. These will be scaled up over the years as they become financially stronger and energy demand increases.
- How can Malaysia increase its supply of renewable energy, for example, solar, nuclear, hydrogen?
OT: Out of the three renewable energies stated, solar energy is the most scalable as Malaysia is an equatorial country enjoying high solar rays all year-round.
We are not experts in this field. But if we were to hazard a guess, adoption of hydrogen is possible provided we have the necessary technology but cost could be an issue. Adoption of nuclear power would probably be a long-term consideration in view of the potential safety issues. The idea of using nuclear energy has only recently been mooted. If neighbouring countries can be assured that it is used purely for utility purpose, then having it as a source of energy is possible as long as the safety issues are successful dealt with.