AI boom fuels Malaysia’s palm oil estates transformation into data centers

In 2024, Malaysia became the fastest-growing data centre market in the Asia-Pacific region, with 40% of Southeast Asia’s planned capacity set for the country, according to The Straits Times. Over the past four years, Malaysia has attracted $34 billion in data centre investments, with plans to build 81 data centers by 2035.

This surge is partly due to Singapore’s moratorium on new centers, prompting operators to look to Malaysia. Johor, just across the causeway, is seeing billions in investments from global tech leaders like Nvidia, Microsoft, Alphabet, and Oracle, as well as data center operators such as Equinix, NTT Data, and GDS Holdings.

"Johor is adding data center capacity at a speed and scale I’ve not seen ever anywhere else in the world," Rangu Salgame, CEO of Singapore-based data center operator Princeton Digital Group, told Fortune. "Three years ago, if you’d asked CEOs of the global tech giants about Johor, they’d have never heard of it, much less be able to find it on a map. Now, everyone is here."

Aerial view of a palm plantation. Photo from Pexels

However, the data center boom is putting pressure on Malaysia’s resources, much like in Singapore. Malaysia, one of the most water-stressed countries, faces potential water shortages in the next five years due to climate change and aging infrastructure. Power consumption is also a concern; a medium-sized data center consumes as much electricity as 125,000 homes annually, and large AI centers can require up to 500 megawatts, more than the total power usage of Johor Bahru.

Palm oil companies are capitalizing on the demand. SD Guthrie, the world’s largest palm oil planter by acreage, is pivoting toward solar farms and industrial parks. "This is where we can play a crucial, significant role in this ecosystem," said Mohamad Helmy Othman Basha, group managing director of SD Guthrie. The company has reserved 10,000 hectares for renewable energy projects, betting that tech giants will prefer sites with ready access to renewable energy over the next decade.

Other palm oil firms are following suit. Kuala Lumpur Kepong Bhd. recently launched a 1,500-acre tech park with electric car giant BYD as an anchor tenant. A second park, nearly double the size, is planned for Johor. IOI Corporation Bhd. is allocating plantation land in Johor for solar projects, targeting at least 300 megawatts, according to Malay Mail.

A view of the Petronas Towers, a major landmark of Kuala Lumpur, Malaysia, June 1, 2021. Photo by Reuters

Despite the opportunities, risks remain. Environmental groups question whether palm oil companies can successfully transition to green energy providers. Fred Fitzalan Howard, real estate consultant Knight Frank’s head of data centers for Asia-Pacific, warned that poorly located industrial parks could result in unused data centers. Malaysia's tropical climate means data centers in the country will require about 25% more energy for cooling compared to those in cooler cities, he added.

While it is unclear whether data centers will drive significant job growth in Johor or attract other tech industries like chip manufacturing, Salgame remains optimistic. He believes that cheaper, more efficient AI models will drive the global adoption of AI, increasing the demand for low-cost AI training centers in regions like Johor. "This is only the beginning," he said.