Smaller data centre players to face competitive pressures, especially in Johor — BMI

• BMI said Johor’s stable infrastructure and government incentives make it an attractive destination for institutional investors seeking reliable and high-growth opportunities.

KUALA LUMPUR (Jan 8): Competitive pressures within the data centre sector may pose a threat to smaller players with limited resources from gaining a foothold, especially in more saturated key markets such as Johor, said BMI.

BMI, a unit of Fitch Group, said while some players are consolidating their developments in the most favourable hubs, such as Johor, financial resources are key to their success.

In the Malaysian market for data centres, main drivers of growth include GDS International, now rebranded as DayOne (19% market share), Yondr (15%), and PDG (14%).

It noted that Johor holds 253MW of live data centre capacity, far exceeding Cyberjaya (74.7MW) and Kuala Lumpur (45.3MW).

"Platforms continue to strategically allocate capital towards the most attractive destinations to increase capacity for cloud computing and artificial intelligence (AI) use-cases.

"For some, like Yondr, this includes securing financing for an upcoming campus in Johor, while for others, namely Keppel REIT (real estate investment trust), [they] have divested away from the less popular Cyberjaya," BMI said in a note on Wednesday.

BMI said Johor’s stable infrastructure and government incentives make it an attractive destination for institutional investors seeking reliable and high-growth opportunities.

Unlike public-sector investors with budgetary constraints, private investors have the financial resources to facilitate large-scale data centre developments, it added.

"With this being an issue prevalent in multiple regions, there will be a distinction to be made between countries unlocking the capabilities of private capital," it added.

For instance, investments like Yondr's US$900 million (RM4.05 billion) loan highlight Johor's attractiveness for hyperscale facilities, said BMI.

It added that DigitalBridge’s acquisition of Yondr is expected to provide the financial backing to expand into markets with a higher total cost of ownership.

"However, fundraising for future funds will prove significant, with efforts linked to an acquisition to the alternative asset manager and the prospective IPO of data centre operator Switch," said BMI.

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