Is Johor’s data center market a bubble in the making? Amid growing concerns about an oversupply of data centers, questions surrounding power and water stability, and its impact on urban planning, many wonder if the rapid development of Johor’s data center market is a bubble in the making.
However, industry players suggest these fears are unfounded – at least for the foreseeable future.
Fast growth, high demand
In just three years, the data center capacity in Johor has skyrocketed from 10MW in 2021 to over 1,500MW. A long list of technological giants such as ByteDance, GDS, and Microsoft have turned to Johor to meet their capacity needs.
The presence of major players like Microsoft in the Johor data center industry indicates that there is significant potential within the market, says Tiffany Goh, the country manager of IVPS Malaysia.
Addressing the issue of oversupply, Goh explained that in real estate, oversupply is typically defined as a development remaining vacant for more than six months after completion. She believes this scenario is unlikely to apply to the data center industry given the current demand. In addition, the construction of a data center is extremely costly, and operators would have conducted a thorough market analysis before investing.
Build and they will come
Building data centers is a lengthy process, involving securing land and approvals. With demand surging due to the growth of AI, customers are now looking for significantly more capacity, between 50 and 100 MW of power.
New data center operators currently face the classic dilemma of developers everywhere: should they build ahead of demand? Waiting until demand materialises could mean missing out on profits. Yet building today’s massive data centers first is a huge financial risk that they must carefully consider.
Apart from tackling the issue of demand and supply in the market, the availability of resources is also one that needs to be taken into account. A typical household will use about eight MWh of power a year, and 100 MW of power can theoretically supply 110,000 households. This figure provides us with context on how much energy is required to power hyperscale data centers.
With power disruptions at the CIQ complex happening twice in less than three months between December 2023 and February 2024, is there enough power for all the new and upcoming data centers?
Expect more regulations
To tackle such issues preemptively, the Johor State Data Center Development Coordination Committee (JPPDNJ) was established earlier this year to introduce guidelines on the usage of water and power by data centers.
The committee had decided that data centers in Johor should focus on the use of renewable technology in addition to saving electricity and water. Speaking publicly in August 2024, Lee Ting Han, chairman of Johor’s investment, trade and consumer affairs committee, said that the authorities are aware that data centers consume large amounts of water and energy, but they will ensure that domestic users will not face interrupted utility supplies.
While it is heartening to know that the state government sees a need to put measures in place for regulatory purposes, the effectiveness of these guidelines will still need to be evaluated over time to determine their true impact and whether they can adequately address the challenges at hand. Industry players are also hoping to receive grants and support from the government to aid in the transition towards building more sustainable data centers in Johor.
Additionally, proper urban planning has been keeping the construction of data centers in check too. In April 2024, PLANMalaysia Johor also published a 40-page guideline titled “Johor State Data Center Development Planning Guidelines.” This provides operators with information regarding data center location, permitted planning zones, land use categories, among other criteria. Operators looking to set up data centers in Johor will have to comply with these guidelines.
Data center development is usually limited to industrial or commercial zones as outlined in the Local Plan (RT) to ensure compatibility with the environment. When proposing data centers in commercial areas, operators are also required to conduct thorough research to align with local character, zoning regulations, and community needs, mitigating potential negative impacts and fostering a positive relationship with the surroundings.
Forging ahead
While Johor is gaining traction due to its data center boom, there are concerns in some sectors that the rapid growth could compromise the development of other industrial sectors. So far, the state seems to be developing well in the semiconductor market. The proposed Johor-Singapore Special Economic Zone (SEZ) is expected to further attract semiconductor players.
For now, it is evident that the Johor government is placing significant emphasis on the growth and regulation of the data center industry, implementing policies and guidelines to support its development.
However, the industry’s rapid expansion is still in its early stages, and while the outlook appears promising, the sustainability of this growth remains to be seen. Continuous monitoring and adjustments will be key to ensuring the market matures in a balanced and resilient manner, benefiting both the industry and the broader community.
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This piece was originally published in Issue 6 of w.media Cloud & Data Center Magazine
