Vietnam, Thailand gain appeal as data centre investors diversify beyond Johor

Vietnam and Thailand are becoming increasingly attractive destinations for data centre investment as regulatory reforms and improving investor sentiment encourage operators to diversify beyond Johor, says research firm BMI.

In its Malaysia Data Centre Overview report, BMI said rising costs, power constraints and stricter sustainability requirements were increasing development risks in Johor, prompting established regional operators to consider alternative markets.

Thailand has introduced a 2GW direct power purchase agreement pilot for data centres, allowing eligible operators to buy renewable electricity directly from generators. Vietnam, meanwhile, has allowed full foreign ownership of data centres and simplified provincial licensing.

BMI, a Fitch Solutions company, said the reforms could help both countries attract investment from operators seeking to lower development costs and reduce exposure to country-specific risks.

“Due to saturation issues in Johor, destinations in Vietnam and Thailand are becoming more appealing as a result of regulatory reforms and overall better investor sentiment.

“Looking ahead, we expect more data centre platforms operating in Asia to consolidate their positions in key hubs such as Johor while diversifying into other markets to mitigate country-specific risks,” it said.

Despite the growing competition, BMI expects Malaysia to remain Southeast Asia’s leading data centre market, with Johor benefiting from its proximity to Singapore, lower operating costs and improving cross-border connectivity.

Malaysia has 125 data centres with 925.6MW of live capacity, 2GW under construction and another 3.1GW planned, according to the report. Johor dominates the development pipeline, supported by demand from large-scale cloud computing companies and the Johor-Singapore special economic zone.

BMI said the shift towards larger, AI-focused facilities was creating opportunities for operators able to secure substantial financing, reliable power supplies and sufficient land.

However, power availability is becoming a major constraint. Data centres accounted for about 20% of Malaysia’s electricity demand growth in 2024, with their share expected to exceed 70% in 2026, the report said.

Electricity demand is growing about four times faster than renewable energy output, while grid expansion typically takes five to 10 years, it added.

New tariffs reportedly imposed on facilities exceeding 100MW have also raised energy costs by 10% to 14%, prompting some operators to pause development plans while awaiting clarity on pricing.

The report said stricter environmental screening is also adding to the challenges, with nearly 30% of proposed data centre developments rejected for failing to demonstrate responsible power and water consumption practices.

These requirements are raising upfront investment costs and favouring operators with stronger balance sheets and the ability to secure dedicated power infrastructure and renewable energy supplies.

BMI expects the market to become increasingly concentrated among well-capitalised platforms backed by private equity, including DayOne, AirTrunk, Bridge Data Centres and Yondr.

These operators are better positioned to finance capital-intensive AI campuses, while smaller platforms may struggle to secure funding and keep pace with rising infrastructure costs, the report said.

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