Southeast Asia's Data Center Boom Faces Growing Challenges
As investments soar in Southeast Asia's data center sector, regulatory pauses and environmental concerns emerge.
Thailand's Data Center Surge Stops
In early 2026, Thailand was poised to become a leader in the data center industry, with major investments on the horizon. The Board of Investment had approved several high-profile projects, including those from TikTok, a UAE-based entity, and Singapore's Bridge Data Centres, amounting to a hefty $27 billion.
However, by September 2026, this promising momentum stalled, as the country halted construction on 49 projects and delayed approvals for an additional 117. This pause was sparked by mounting worries over the lack of clarity regarding regulatory and monitoring frameworks.
Regional Impacts and Suspensions
Thailand's situation is emblematic of larger trends in the region. In neighboring Indonesia, the governor of West Java took a similar step, pausing a major data center construction due to permit issues and environmental assessments yet to be completed.
Despite a global surge in data center demand driven by advancements in AI technologies, Southeast Asia has emerged as a key player in the Asia Pacific region. A 2026 report by Cushman and Wakefield indicated that Southeast Asia holds the largest share of data center capacity currently under construction, making up about 50% of the total in the Asia-Pacific region.
Shifting Hubs: From Singapore to Malaysia
In the past decade, Singapore was the preferred location for data centers, with tech giants like Alibaba and Facebook establishing their presence there. However, from 2019 to 2022, the nation imposed a moratorium on new sites, citing heavy water and electricity usage. As a result, only 95 MW of operational capacity has been added in Singapore from 2023 to 2026, according to Cushman and Wakefield.
As companies look beyond Singapore, Malaysia has seen significant growth, particularly in Johor. The southern state’s operational capacity has skyrocketed from 94 MW in 2023 to 1,110 MW in 2026, with an additional 3,088 MW planned or under construction. This growth has attracted investments totaling $40 billion, including from Microsoft, which plans a $2.2 billion investment in cloud and AI infrastructure across Kuala Lumpur and Johor, and AirTrunk, which intends to double its data centers in Johor with a $3 billion injection.
Emerging Developments Across Southeast Asia
Other nations in Southeast Asia are ramping up their data center projects as well. Indonesia has a pipeline of 1,699 MW of data centers in greater Jakarta, while also growing Batam as a secondary hub. Major investments are underway, such as Microsoft's $1.7 billion commitment for five data centers in Indonesia.
In Thailand, the development pipeline in Bangkok is estimated at 2,084 MW, and markets like Manila and Ho Chi Minh City are increasingly becoming active in the sector, according to Cushman and Wakefield.
Resource Strains and Environmental Concerns
The surge in data center constructions across Southeast Asia, however, has raised concerns regarding resource consumption. Wood Mackenzie estimates that data centers in Johor account for 24% of the state's total power consumption, a figure that may rise to 40% by 2035.
The water usage of data centers is another pressing issue. Already, the operational data centers are estimated to consume about 675 million cubic meters of water daily in Johor, and similar worries are echoed in Thailand, particularly regarding the Khlong Luang Reservoir, which is under pressure from industrial water demands.
As local communities begin to voice their concerns, protests have already unfolded in Johor against a project by China’s ZData Technologies, highlighting worries over pollution and water supply impacts.
Future Directions and Sustainability Initiatives
Southeast Asian data center operators are striving to make their facilities more sustainable. For instance, Bridge Data Centres has implemented a water reclamation system in Johor to mitigate water consumption, while AirTrunk is working with local sewage treatment operators to recycle wastewater for their cooling needs. Despite these advancements, sustainability challenges persist. Microsoft acknowledges the importance of clean energy projects to power its operations, even as its facilities currently show low energy efficiency compared to the global standards.
With resource pressures leading to more stringent regulations, countries in the region are reassessing new data center approvals. Singapore's recent approval framework now ties new data center constructions to factors like energy usage and carbon emissions. Similarly, Malaysia has formed a task force to scrutinize new projects with an emphasis on resource security.
Experts like Jie-Sheng Tan-Soo argue for a comprehensive national policy framework that holds data center operators accountable for their resource consumption. Southeast Asia recognizes the need for prepared measures, yet the pace of investment and environmental preparedness must align for sustainable growth.
