Johor’s Growing Data Centre Sector

KUALA LUMPUR: According to Olive Tree Property Consultants Sdn Bhd’s CEO, Samuel Tan, Johor boasts more than 50 data centres at different stages—application, construction, or operation. With the introduction of the Forest City Special Financial Zone (SFZ), the region is poised for an influx of foreign direct investments (FDI), complementing the Johor-Singapore Special Economic Zone (JS-SEZ).

Despite a notable increase in data centres across Malaysia in the previous year, Tan emphasized that many operators are keen on establishing new facilities in Johor. He also pointed out that local property developers are increasingly collaborating with leading data centre operators to anchor their industrial parks.

Tan acknowledged the challenges posed by power and water supply but remains optimistic about the future. He believes that the development of data centres will foster a demand for renewable energy and water management innovations.

“We expect to see more solar farms and water desalination projects emerge, ultimately leading to job creation for the local population,” he mentioned in an interview with NST Property.

The growth of data centres is anticipated to benefit various sectors, including high-end electrical and electronics (E&E), semiconductors, pharmaceuticals, and real estate. Tan forecasts a rising demand for housing, office spaces, retail outlets, and accommodations for the workforce.

As the industrial landscape evolves, Tan expects Johor’s industrial sector to perform strongly through 2024, driven by data centre and E&E sector investments. “We foresee more businesses, particularly those based in Singapore, leveraging the JS-SEZ and SFZ to set up manufacturing operations in Johor,” he stated.

Tan also highlighted the significance of small and medium enterprises (SMEs) as a critical component of the economy, providing consistent employment opportunities. “SMEs are integral to economic stability, and it’s vital to support them through incentives and assistance in areas such as digitalization and market expansion,” he added.

Knight Frank Malaysia reported that the industrial property market is anticipated to remain strong for the rest of the year, fueled by investments in data centres and the E&E sector. Their projections indicate a 3.5% growth in the manufacturing sector, supported by the recovery of export-oriented industries and sustained domestic demand.

The E&E sector, responsible for around 40% of Malaysia’s exports, is expected to rebound due to advancements in global technology, including digitalization, the Internet of Things (IoT), 5G, and electric vehicles.

In the Klang Valley region, the industrial market has had a robust start to 2024, marked by increased transaction volumes and values during the first quarter. Knight Frank has noted growing interest from institutional investors seeking assets within the industrial sector, indicating an ongoing demand for manufacturing and logistics spaces.

The firm noted that well-located industrial properties remain highly sought after, as investors look to capitalize on steady returns from the sector. Rental rates for prime industrial spaces in Klang Valley are expected to remain stable throughout 2024, supported by limited availability of both existing and new supply.

Additionally, the construction of high-specification logistics facilities with sustainability features, while involving higher costs, is expected to contribute to rental rate growth in the medium term.