South-east Asia datacentre expansion slows as power and water limits tighten

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SE Asia datacentre slowdown

Highlights

Thailand paused construction on 49 datacentre projects and approval of 117 more by September 2026 due to regulatory oversight concerns.
Johor, Malaysia becomes south-east Asia's largest datacentre hub, attracting $40bn investment by 2026, with operational capacity rising from 94MW in 2023 to 1,110MW in 2026.
Rising electricity and water consumption triggers regulatory tightening across the region, with Malaysia and Thailand implementing higher tariffs, stricter environmental standards, and project approval frameworks.

Regulatory checks reshape project pipelines

As reported by The Guardian, the region’s datacentre boom is losing momentum after months of aggressive expansion, with authorities in several markets intervening over permitting, environmental review and infrastructure strain.

Thailand illustrates the shift most clearly. In early 2026, the country’s Board of Investment approved datacentre projects from TikTok, UAE-based Skyline datacentre and Singapore’s Bridge datacentres, with planned investment totaling $27bn. But by September 2026, Thailand pauses construction on 49 projects and approval decisions on 117 more amid concern that regulators lack sufficient detail for monitoring and oversight.

Indonesia is also reassessing developments. In West Java, the provincial governor halts construction on a datacentre over missing permits and an incomplete environmental assessment process. Across the broader region, the slowdown comes even as a 2026 Cushman and Wakefield report shows south-east Asia accounts for about half of Asia-Pacific’s datacentre capacity under construction, with Malaysia and Thailand representing a significant share.

Singapore remains an important reference point for the sector’s policy direction. The city-state, once the region’s main datacentre hub, imposed a moratorium on new facilities from 2019 to 2022 because of their heavy electricity and water demands. Since that pause ended, approvals remain selective under land and sustainability constraints, and only 95MW of operational capacity is added between 2023 and 2026, according to Cushman and Wakefield.

Resource constraints raise costs and scrutiny

Demand still remains strong as cloud computing and AI workloads expand. Malaysia’s Johor state becomes the region’s largest datacentre hub, with operational capacity rising from 94MW in 2023 to 1,110MW in 2026 and a further 3,088MW under construction or planned. State leader Onn Hafiz Ghazi says Johor attracts $40bn in datacentre investment by 2026, while Microsoft and AirTrunk are among the major operators expanding there.

But that growth is intensifying pressure on electricity systems and water supplies. Wood Mackenzie estimates datacentres in Johor already account for 24% of the state’s total power consumption today and that share could rise to 40% by 2035. Thailand’s energy minister, Akanat Promphan, says datacentres rely on large amounts of power generated from costly imported gas and calls for a separate electricity user category with higher tariffs.

Water use is becoming another central issue. Johor is drought-prone, while research cited in Indonesia points to higher cooling-water consumption in hot and humid lowland environments. In Thailand’s Eastern Economic Corridor, residents are raising concerns over pressure on depleted reservoirs, including the Khlong Luang Reservoir in Chonburi, according to EEC Watch research director Somnuck Jongmeewasin.

Community resistance is also becoming more visible. Johor records its first public protest against datacentre construction in February, with demonstrators objecting to dust pollution and possible water-supply impacts near a residential area. Analysts also question whether datacentres deliver enough long-term employment to justify their large use of land, electricity and water.

Operators say they are improving efficiency through wastewater recycling, water reclamation and cleaner energy sourcing. Even so, policymakers across the region are tightening approval frameworks. Malaysia has set up a datacentre taskforce, Johor says it will no longer approve Tier 1 and Tier 2 facilities with very high water use, and Thailand is introducing a framework that weighs energy demand, water consumption, power guarantees and higher tariffs for operators.

Our earlier article on Malaysia’s Menarabena construction platform examined how the sector is moving toward digital tools that centralise certification, technical documentation and compliance information for building materials. We noted that the initiative, developed with CIDB-linked support, is meant to strengthen oversight and supply-chain efficiency without replacing existing approvals—highlighting how governance and verification requirements are becoming a bigger factor in project execution.

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