The datacentre arms race hits pause in south-east Asia

Power and water constraints are putting a pause on the robust growth anticipated for the Southeast Asian datacentre industry just a few years ago. In early 2026, Thailand's datacentre sector was booming, with the country's Board of Investment approving projects from major players like TikTok, Skyline Datacentre, and Bridge Datacentres in Singapore, amounting to a planned investment of $27 billion. However, the momentum has now stalled.

Thailand recently halted construction on 49 projects and delayed approval for 117 more in September 2026, amid growing concerns over insufficient regulatory details and monitoring. This is not an isolated case; Indonesia's West Java province recently halted a datacentre construction due to permit issues and incomplete environmental assessments.

The region has emerged as a surprising hub of growth for datacentres, driven by the increasing global demand for AI usage. While China leads in datacentre capacity, Southeast Asia possesses the largest share of under-construction capacity, accounting for about 50% of the total. Malaysia and Thailand make up a significant portion of this capacity.

Singapore, once the leading Southeast Asian datacentre hub, implemented a moratorium on new datacentres from 2019 to 2022 due to high water and electricity usage. Since then, approvals have been selective due to land scarcity and sustainability requirements, leading to only 95MW of operational capacity added between 2023 and 2026, according to Cushman and Wakefield.

Malaysia has been a major beneficiary of this surge in datacentre demand. The southern state of Johor's operational capacity has grown tenfold from 94MW in 2023 to 1,110MW in 2026, with an additional 3,088MW under construction or planned. Johor has become the largest datacentre hub in Southeast Asia, attracting $40 billion of investment as of 2026, according to Malaysia's Menteri Besar Onn Hafiz Ghazi.

Other Southeast Asian countries are also catching up. Indonesia has a pipeline of 1,699MW of datacentre development in Greater Jakarta, and is developing the island of Batam as a secondary hub. Microsoft is investing $1.7 billion in five datacentres in Indonesia, while Singapore-based operators Princeton Digital Group and Digital Edge are expanding. In Thailand, Bangkok's pipeline stands at 2,084MW, with secondary markets like Manila and Ho Chi Minh City ramping up operations.

However, this rapid growth in datacentre development is straining each country's resources. Wood Mackenzie estimates that datacentres in Johor already consume 24% of the state's total power, which could rise to 40% by 2035. Alvin Tan, a research analyst at Wood Mackenzie, warns that this could lead to grid connection bottlenecks and the need for transmission network upgrades and new power supply capacity.

Thailand's energy minister, Akanat Promphan, has proposed creating a new electricity user category with higher tariffs to reflect the increased demand. Water usage is also a major concern in the region. Johor, known for its drought-prone conditions, estimates that current operational datacentres consume about 675 million cubic meters of water daily.

In Indonesia, many datacentres are water-cooled and located in hot, humid lowland areas, resulting in higher water consumption compared to facilities in more favorable climates. In Thailand, datacentre projects in the Eastern Economic Corridor have residents worried about the strain on their already depleted water reservoirs.

Local communities are becoming increasingly aware of these issues. In February, Johor witnessed its first public protest against datacentre construction, with demonstrators opposing a project by China's ZData Technologies due to concerns over dust pollution and potential impacts on water supply. Jie-Sheng Tan-Soo, an assistant professor at Singapore's Lee Kuan Yew School of Public Policy, points out that while datacentres bring investment and construction activity, they typically generate fewer long-term jobs than other industries requiring similar amounts of land, electricity, and water.

He questions whether communities are receiving a proportionate share of the benefits while bearing the environmental costs.