Johor’s proximity to Singapore remains key to drive data centre investments, credit rating firm director says

KUALA LUMPUR (April 24): Johor’s proximity to Singapore continues to drive data centre investments into the state, even as rising operating costs narrow its cost advantage, said S&P Global Ratings corporate ratings director Ng Yijing.

Ng said Johor remains well-positioned in the regional data centre landscape, supported by land availability, proximity to Singapore and cost competitiveness.

“Three things — land availability, proximity to Singapore as well as the region’s extensive subsea cables, and cost efficiency,” she said, referring to Johor’s positioning amid intensifying regional competition for data centre investments.

Ng was speaking at a panel discussion titled Data Centres: Financing this New Asset Class at a forum jointly organised by S&P Global Ratings and RAM Ratings.

She noted that while cost advantages have become less compelling following increases in electricity tariffs and tighter water regulations, Johor remains more cost-competitive than Singapore.

It was reported that electricity costs for power-hungry facilities like data centres rose 10%-15% under new “ultra-high voltage” category, effective July last year.

“Even with that, it is still going to be much lower cost to operate a data centre in Johor than in Singapore,” Ng said, adding that cost is not the primary determinant for data centre location decisions.

She noted that while markets such as Thailand, Vietnam and India are gaining traction in the data centre space, Johor continues to benefit from its strategic location proximity to Singapore, enabling it to capture the spillover demand as capacity constraints and higher costs in the city-state push data centre investments across the border.

“A data centre, in my opinion, being in the right place for the right use, for the right demand, is going to be the undying key principle,” she added.

Shift towards higher-tier data centres seen curbing oversupply risk

Another speaker at the panel discussion, Maybank Investment Bank Bhd's regional head for debt capital markets Andrew Lim, said concerns over a potential oversupply of data centres in Malaysia are easing, following policy measures aimed at tightening data centre project approvals.

Lim said the shift towards higher-tier facilities — particularly Tier 3 and Tier 4 data centres — would curb oversupply by steering development towards higher-quality data centres.

Lim said he had initially seen a risk of oversupply amid the data centre investment boom in Malaysia. 

“[But] after the recent [changes in] policies, I think we are heading in the right direction of controlling oversupply, by getting very high-quality data centres,” he said.

In November last year, Johor authorities indicated a more selective approach to data centre approvals, including prioritising higher-tier projects with stronger efficiency standards, amid concerns over water usage as data centres rely heavily on water for cooling.

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