Is Johor's blistering data centre growth slowing?

Is the growth of data centres in Johor slowing down? Recent developments suggest that a period of rationalisation might be here.

I went away for a week and was catching up on recent developments. One question came to my mind: Is Johor's data centre boom slowing down?

Let's see if we can connect the dots.

Of cancelled projects

According to reports yesterday, UEM Sunrise Bhd’s deal to build a 360MW data centre campus in Gerbang Nusajaya, Johor, with Singapore firm Logos was scrapped.

While reports suggested that it's due to changes in Logos’ ownership - ESR Group bought the remaining 13.6% stake from its founders in July 2024, I think there's more to it.

I'll note that ESR is a significant data centre player with as much as 2GW of capacity in the pipeline. Why is it passing up a chance to build in Johor?

Rise in cost of electricity

If you haven't heard by now, Malaysia's TNB has introduced new tariff rates. And it'll take effect from 1st July - next week.

• A complete overhaul of how electricity is charged.
• Voltage-based; impact on heavier users.
• Electricity cost reviewed monthly*.

*Was every 6 months.

The changes are expected to increase costs and bring about greater unpredictability in operating expenses for data centre operators.

Some operators have sought to mitigate this by signing long-term PPAs with TNB or buying renewable energy through CRESS (Corporate Renewable Energy Supply Scheme).

Note: A grid usage access fee is charged for renewables.

Resource constraints

When I visited BrightRay's MY-01 data centre in Sedenak Tech Park, Johor, last month, I realised that while phase 1 uses cooling towers, the upcoming phase 2 and phase 3 will use dry coolers.

The reason? Inadequate water supply.

Now, I'm not saying Johor is out of water - it's simply not true. What is clear is that demand has outstripped supply at certain locations.

From my conversation with those in the know, the situation is actively addressed. However, it will likely take a couple of years since you can't just magic water treatment plants out of thin air.

A temporary speed bump

I'm also hearing of some hyperscalers looking beyond Johor, for their next deployments. Why? I don't know. But logic dictates that putting everything in one place creates a concentration risk.

In my view, the current slowdown is merely a speed bump as rationalisation takes place. Data centres are still being built, and new players are still looking at entering Johor.

As I wrote previously, I believe Johor has reached a critical mass as a regional data centre hub. What do you think?