Navigating SE Asia's Data Center Market: What It Takes To Win (2025)

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The data center growth in Asia and particularly in SE Asia hasattracted substantial investments and has a diverse set of playersgoing after the market. However, there also deep complexities andchallenges with the planning, build and monetization aspects. So,what does it take to win here? Darryll Sinnappa (Malaysia CountryLeader for STT Global Data Centers) and I deliberated over theissues during a recent conversation and we captured the points inthis article.

The global data center industry is projected to grow at 8% CAGRby 2027, with APAC growing the fastest at 12% (figure 1).Populations across Asia are becoming more connected throughbroadband, both mobile and fixed, with the region's vastdemographics driving the quantum of data consumption. Corporates inthe region have started to pursue digital transformation at scale,even though many still lag their North American counterparts in AIadoption.

Figure 1

90% of the SE Asian data center market is driven by fivecountries—Indonesia, Thailand, Vietnam, Malaysia, andSingapore (figure 2).

Digital adoption in these countries has been significantlyboosted by government initiatives such as Indonesia's PalapaRing project, Malaysia's Jendela plan, and Singapore'sDigital program. The foundation is now well-established for digitalinfrastructure companies to build on this momentum and incubate thedigital ecosystems needed to serve hyperscalers, governments, andenterprises.

Figure 2

Four distinct archetypes of players are vying for pole positionin the market: real estate entities (including Keppel, Sime Darby,Damac, and others); telcos (such as Singtel and TM); hyperscalers(such as AWS, Azure, GC, and Alibaba Cloud); and standaloneinfracos (including Equinix, Digital Realty, and STT GDC). As eachplayer archetype brings their seasoned playbook to this strategicopportunity, we assess their "right to play" and explorethe key attributes the market will value most.

I recently met with Darryll Sinnappa, Country Head of STTelemedia Global Data Centers (STT GDC) Malaysia, to explore thecompetitive dynamics shaping the industry and the major challengesfacing its players. Below is the synopsis of our discussion, alongwith Darryll's valuable operational insights.

The complexity of data centers

Building and monetizing a data center requires addressing aunique set of challenges. Among the most critical are these fourkey factors:

1. Technology selection: Data center economicsare closely tied to the underlying technologies. Given the energyintensity associated with data centers, selecting scalable andsustainable power management and cooling technologies helps notonly in attracting "green" conscious customers, but alsoin managing operating costs and constraints effectively. Makingbets on emerging technologies, and collaborating with the rightpartners in relatively smaller markets within the region, can bechallenging even for mature and technology-driven companies.
   
2. Design and technology integration: Buildingdata centers requires careful design, integration, and optimizationof large, interconnected systems. While the design of the physicalshell itself is relatively straightforward, designing the floor andrack space for maximum capacity, provisioning for convectioncooling and dimensioning, and integrating power and coolingequipment add significant complexity to the process.
   
3. Site selection and supply chain management:Building a data center involves navigating a web of complexlogistical challenges. Identifying a suitable location that offersreliable power, an abundant water supply, and proximity toend-users (to minimize latency) is akin to solving a Gordian knot,due to the often-conflicting requirements. Additionally, theprocess of obtaining permits and approvals entails collaborationwith multiple stakeholders, including zoning authorities,environmental agencies, and policymakers. This process can beparticularly prolonged and complex in emerging markets. While theconstruction of the physical structure is relativelystraightforward, ensuring the timely supply of power and coolingequipment becomes increasingly challenging amid surging demand fordata centers.
   
4. Attracting customers, building ecosystems, andmonetizing investments: Data center developers need toensure that a robust ecosystem is established during theconstruction phase. Key elements such as networkconnectivity— with ample capacity network provider options,diverse routing options, and proximity to subsea links, and anecosystem of services (including cloud migration, cybersecurity,and IaaS/PaaS providers)—are crucial for attracting a largerbase of corporate and mid-size customers beyond the anchortenant.

The data center player competitive landscape

Data center (DC) builders in SE Asia belong to four mainarchetypes: real estate majors; telco players; hyperscalers; andspecialty/pureplay DC providers. Below, we assess their respectivestrengths and weaknesses as they claim their "right toplay".

It was evident from our discussion that there are no clearwinners in this race. However, telco players appear to be at adisadvantage compared to others when it comes to buildinglarge-scale data centers. For telcos, this may represent a moredefensive play against hyperscalers, who are increasinglyencroaching on their position within the enterprise valuechain.

So, what strategies should data center players adopt to addressthe challenges and navigate this competitive landscape? Darryll andI discussed a few plays:

Strategy 1: Horses for courses

Data center economics are closely tied to upfront capex,occupancy, and the range of services offered. Consequently,comprehensive planning and scenario modeling are required beforeselecting a location and determining the specifications of the datacenter. This includes developing a select set of data centerarchetypes based on prospective customer types, their preferences(e.g., multinational corporations may have more stringentsustainability requirements), dominant use cases, and localconstraints (such as space, power, water, and physical security).Optimizing upfront capex while ensuring flexibility in the futureis a fine balance, achievable only with prior experience.

Strategy 2: Standardize equipment, consolidate suppliers, andsimplify local supply chain

In a seller's market, established providers of power andcooling technologies often cater to and prioritize large, globaldata center players. This scenario leaves regional players with nochoice but to account for potential supply bottlenecks whenplanning for critical equipment. Simplifying the local supply chainand streamlining the elements of the overall build-to-cash cyclecan help mitigate these constraints. Building deeper relationshipswith General Contractors (GCs) in the region based on a clearmutual understanding of the value creation sources and"should-cost" principles can further enable the design ofan efficient supply chain.

Strategy 3: Partnerships

Across many regions of SE Asia, the existing infrastructure isoften insufficient to support medium- to large-scale data centerbuilds. Partnerships provide a viable strategy to share gains,mitigate execution risks, and accelerate monetization. State-ownedutility providers seeking higher shareholder returns areincreasingly open to forming strategic partnerships. An influentiallocal partner for out-of-region builds can help mitigate the riskassociated with changes in government policies, to some extent.

Given the capex intensity and associated monetization risks ofdata centers, partnerships between industry players should beencouraged. Such collaborations can help prevent overcapacity andreduce competition for scarce resources.

Conclusion

With the demand for AI, analytics, and cloud-enabled servicescontinuing to surge in the region, data center providers thatquickly learn and strengthen their expertise gain a competitiveadvantage. Success will belong to the industry players who getlocation selection, technology implementation, strategicpartnerships, and financial engineering right.

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