SINGAPORE (MNTV) — Malaysia’s rapid emergence as a regional data center hub amid the global artificial intelligence (AI) boom is creating new strains on power, water and talent resources, raising questions about how sustainable the sector’s growth will be over the longer term, ASEAN+3 Macroeconomic Research Office (AMRO) said in a report.
While surging demand for AI computing power, cloud services and data storage has positioned Malaysia as one of Asia’s key beneficiaries of digital infrastructure investment, the pace of expansion is beginning to expose structural constraints, it added.
Among the most pressing challenges are rising electricity and water requirements, limited domestic value capture and shortages of specialized workers needed to support increasingly sophisticated facilities.
Although Malaysia is expanding electricity generation capacity, particularly through new gas-fired projects, demand growth from data centers could outpace supply in some locations, it noted.
The government began restricting approvals for new non-AI data center projects in February 2026 due to their high electricity and water consumption.
Water demand is also emerging as a critical issue. AMRO noted that cooling systems for high-performance servers require substantial volumes of water, with a 100-megawatt (MW) data center consuming about 4.2 million liters daily.
As clusters of facilities continue to grow, particularly in Johor state, AMRO said pressure on local water infrastructure could intensify, increasing the need for sustainability standards and resource-efficient technologies.
The organization also highlighted concerns over the extent of domestic economic spillovers from the industry.
During the construction phase, a large proportion of equipment used in Malaysian data centers, including servers, cooling systems, networking hardware and integrated racks, is imported, limiting the amount of value added retained within the local economy.
While construction activity provides some economic benefits, AMRO said greater opportunities arise during the operational phase through spending on utilities, maintenance, leasing and support services.
Data centers can also support the expansion of information and communication technology (ICT) services exports, including cloud computing, hosting and data-processing services, while potentially creating opportunities in higher-value activities such as software development and enterprise digital services, according to the think tank.
Employment benefits, however, remain relatively modest compared with the scale of investment, it said.
AMRO noted that while construction generates significant temporary jobs, operational facilities typically employ only 30 to 50 full-time workers.
At the same time, the sector faces shortages of skilled personnel in areas such as information technology (IT) infrastructure management and environmental controls, with competition for talent from Singapore continuing to intensify.
Although higher global energy prices resulting from tensions in the Middle East could place upward pressure on electricity tariffs, AMRO said Malaysia remains cost-competitive compared with many regional economies and advanced markets.
For the think tank, geography is another advantage. Situated outside the Pacific Ring of Fire, Malaysia faces lower risks from earthquakes and other natural disasters that could disrupt operations.
Its proximity to Singapore, one of Asia’s most important digital connectivity hubs, also enhances its appeal. Singapore’s extensive network of undersea cables enables operators in neighboring Johor to connect efficiently to global digital infrastructure while benefiting from lower operating costs.