Malaysia’s data centre rules aim to green the sector, not slam the door

JOHOR, 24 AUGUST 2026 —

Malaysia Tightens Data Centre Rules to Balance Growth with Sustainability

Global data centre occupancy reached 97% at the end of 2025, with 77% of under-construction capacity already committed to tenants, according to JLL. Hyperscalers such as Amazon and Meta account for over half of all data centre space, providing stability to landlords. However, the sector now faces constraints including power availability, land access and sustainability requirements.

In the United States, at least 75 data centre projects worth US$130 billion were delayed or blocked in the first quarter of 2026 due to local opposition, nearly matching the total value of projects stalled in 2025. New York recently became the first US state to impose a temporary ban on large new data centres, citing concerns over energy and water resources.

Southeast Asia, which holds the largest share of data centre capacity under construction in the Asia-Pacific, is also seeing growing unease. Malaysia, home to Johor—the region’s fastest-growing data centre market last year—is now in a "reset mode," according to S&P Global Ratings. The southern state, which accounts for 80% of Malaysia’s data centre capacity, has halted approvals for projects that are less water- and power-efficient and enforced stricter sustainability rules.

Last year, Malaysia established a data centre task force to coordinate policy on planning, investment approvals and infrastructure. New regulations include higher utility tariffs, mandatory declarations of annual electricity demand and penalties for operators failing to meet 85% of their stated annual electricity utilisation. "Higher barriers to entry in the sector will favour more experienced and better capitalised developers and operators," said Jamie Tan, managing director at JLL Malaysia.

Johor’s operational capacity surged to 1 gigawatt in four years, exceeding Singapore’s installed capacity, which took a decade to build, according to DC Byte. The state’s regulatory tightening aims to prevent bottlenecks as infrastructure investments ramp up. "It’s tempting to view what’s happening in Johor through a US lens, but there are huge differences," said Paul Mah, an adviser on Asia-Pacific digital infrastructure.

Unlike the US, where anti-data centre sentiment is growing, Malaysia seeks to sustain its position as a leading hub.

The government is also prioritising quality over quantity to curb speculative development. Last year, actual electricity demand for data centres was only 55% of approved capacity, highlighting overbuilding. Penalties for underutilisation aim to discourage speculative bids and ensure efficient resource use. Data centres are expected to consume over 30% of Malaysia’s power by 2035, up from 7% currently, underscoring the need for judicious policies.

While Thailand experiences a surge in data centre investment, Malaysia is tightening rules to ease pressure on natural resources and accelerate the shift to renewable energy. "It’s not about more permissive or less permissive regulation, but about finding the right way to grow the sector in a sustainable manner," said Neil Bear-Hetherington, director for Asia-Pacific data centre capital markets at CBRE.

Malaysia’s approach contrasts with the US, where some politicians oppose data centre growth. Instead, Malaysia aims to bolster its position as a sustainable data centre hub, balancing economic benefits with environmental responsibility.

Related: Amazon · Johor