As the world rapidly transitions to 5G connectivity, the need to accommodate large volumes of data and traffic is more evident than ever. Hyperscale data centres are leading this technological revolution. The Sotheast Asian countries have become the prime destinations for setting up data centres, owing to fav­ou­rable government policies and cost-effective construction options. The Covid-19 pandemic has further accelerated the growth of the data centre market, driven primarily by the sudden surge in demand for remote working solutions.

A look at the data centre adoption in various Southeast Asian countries…

Philippines

The Philippines is a key emerging data centre market in Southeast Asia. Accor­d­ing to SPER Market Research, the growth of the Philippines data centre market is largely attributed to the government’s eff­orts to promote digitalisation and e-governance, the increasing adoption of cloud-ba­sed services and growing demand for data storage and management solutions. Fu­rther, the Philippines’ data centre market is being driven by a tremendous growth in the international digital connectivity.

The retail co-location market is expe­cted to grow at a compound annual gro­wth rate (CAGR) of approximately 7.5 per cent, while wholesale co-location is exp­e­cted to grow at a CAGR of approximately 51 per cent, largely driven by hyperscale cloud service providers. The capital city of Manila is the Philippines’ primary data centre hub, hosting the majority of the country’s facilities. Additional facility de­ve­lopment is not limited to Manila. Other cities are also witnessing a rapid increase in the data centre investment.

Indonesia

Indonesia is emerging as a significant data centre hub in Southeast Asia, driven by its rapidly growing digital economy and the government’s active promotion of the industry. Major data centre projects are currently under way in the country. The key factors fuelling this growth include the increasing demand for cloud computing services and the country’s large and expan­ding population, creating a market for data-intensive applications. As per a report by Mordor Intelligence, Indonesia’s data centre industry will grow at a CAGR of 14 per cent from $2.06 billion in 2023 to $3.98 billion in 2028. The industry has attracted multinational cloud service pro-viders such as Amazon Web Services (AWS), Go­ogle, Microsoft and Alibaba to establish da­ta centres in the country. Indonesia al­rea­­dy has over 90 data centre providers.

The development of data centres in Indonesia aligns with the government’s efforts to accelerate digital transformation across all ministries, government agencies and state-owned enterprises. Combined with the high domestic demand for digital services, Indonesia’s data centre industry presents foreign investors with an opportunity to profit from this relatively untapped sector.

The Indonesian government is facilitating the country’s digital economy through a vibrant technology sector, supported by one of the highest concentrations of start-ups globally. Trailing only behind the US, India, the UK and Canada, Indonesia currently has over 2,100 start-ups. Under the Minister of Finance Regulation 130 of 2020, the Indonesian government rolled out tax incentives in the form of tax reductions for 18 industries. These incentives apply to digital economy data processing, hosting and related activities. The government is also building four national data centres with Tier IV certification, providing the highest resistance against threats such as natural disasters, power outages and equipment failures.

Malaysia

The Malaysia data centre market is projected to register a CAGR of 16.64 per cent between 2023 and 2029. The IT load capacity of Malaysia’s data centre market is expected to grow steadily and reach 1,358 MW by 2029, while the country’s total raised floor area is expected to increase to 7.7 million square feet by 2029. Owing to evolving digital trends, data centre companies see significant potential in the country. The market is witnessing significant growth due to the penetration of digitalisation and the adoption of advanced technologies, which has also increased the co-location demand.

The growing emphasis on data centres to meet the escalating demand for data can be attributed to the availability of a skilled workforce and the cost advantages associated with operating in Malaysia, making it an attractive location for data centres. This is complemented by stringent safety and quality regulations governing the quality of digital services.

The Tier I and II segments of the Ma­lay­sian data centre market reached an IT load capacity of 0.59 MW in 2021, growing to 2.39 MW in 2022. These segments are expected to reach a capacity of 3.59 MW by 2029, recording a CAGR of 5.99 per cent. In contrast, the Tier III segment recorded an IT load capacity of 257.85 MW in 2021, and is expected to grow fr­om 457.66 MW in 2022 to 1,379.11 MW by 2029, registering a CAGR of 17.07 per cent. The Tier III segment has a higher growth rate compared to other tiers. However, the Tier IV data centre segment is expected to remain stagnant in the near future, with increased opportunities ex­pec­ted to emerge in the coming years.

Singapore

The Singapore data centre market is well connected to several major markets, with approximately 25 submarine cables. In addition, 13 additional submarine cables are currently under construction and will connect Singapore to major markets worldwide. The increasing adoption of cloud-based services in the country is driving the development of cloud regions by major cloud service providers such as AWS, Microsoft, Facebook, Google and Oracle.

The Tier III and IV segments of the data centre market are expected to account for the largest market share during the forecast period. The Tier III segment is expected to hold the highest market share of 71.5 per cent in 2023. However, its share may decrease to 61.4 per cent in 2029 due to the upcoming Tier IV data centres. Singapore has a robust digital infrastructure, with 100 data centres, 1,195 cloud service providers and 22 network fabrics.

Thailand

The Thailand data centre market is witnessing expansion, driven by multiple factors, including increased mergers and acquisitions, investments by local and foreign businesses and the government’s eff­orts to promote renewable energy. Enter­prises are adopting cloud due to its scalability and cost-effectiveness. Several glo­bal cloud service providers have announ­ced their availability zones in Thailand, particularly in locations such as Bangkok and Nonthaburi, due to their strong fibre connections and proximity to clients. The data centre market is expected to grow at a CAGR of 5.2 per cent between 2023 and 2028, from $2.48 billion to $3.37 billion. Thailand has no facilities with Tier I or Tier II certification. The Tier III data centre segment reached an IT load capacity of 71.48 MW in 2021, and is anticipated to grow from 74.33 MW in 2022 to 199.55 MW by 2029 at a CAGR of 15.15 per cent. The Tier IV data centre segment reached an IT load capacity of 20 MW in 2021, and is anticipated to grow from 20 MW in 2022 to 50 MW by 2029 at a CAGR of 13.99 per cent. The Government of Thailand is facilitating the development of the data centre industry through various initiatives, including the Board of Investment  promotion plan (2023-27). This plan offers several tax advantages and other benefits to businesses that invest in data centres in Thailand. These incentives will help Thailand beco­me a premier data centre hub in the rapidly growing market.

The way ahead

The Southeast Asian data centre market is set to witness significant growth, reaching a valuation of $14.19 billion by 2028, a significant increase from $9.68 billion in 2022. This reflects a CAGR of 6.57 per cent, underscoring the region’s commitment to embracing digital transformation. Overall, Southeast Asia is emerging as a front runner in the global adoption of data centres. The region’s rapid uptake of digital technologies, increasing data consumption, supportive government policies and cost-effective construction options are expected to drive the expansion of the data centre market in the coming years.