Data centre race: Singapore betting on quality over scale, say observers

[SINGAPORE] As South-east Asia and the world bet on artificial intelligence (AI), data centres have become one of the hottest investments.

A November report from Fortune Business Insights estimated the global data centre market size at about US$243 billion in 2024, with projected growth to reach about US$270 billion in 2025. Much of this growth is expected to be driven by AI.

Meanwhile, data centre investments could hit US$7 trillion by 2030, with more than half dedicated to computing hardware, according to McKinsey and Company. About 60 per cent of that will be spent outside the US.

Singapore is keen to embrace AI and capture its economic benefits. In 2023, it unveiled the latest version of its National AI Strategy, which includes the 70-odd data centres in the country that are required for AI-related use.

The country has also pushed for “sustainable” data centres since lifting a three-year moratorium on new data centre projects in 2022. 

This year, the city-state announced plans to build a low-carbon data centre park on Jurong Island with up to 700 megawatts (MW) of capacity – its largest such facility to date.

The Business Times examines where Singapore’s data centre ambitions are headed in 2026, where the country stands in the regional data centre race, and the challenges it faces.

What Singapore wants

The Republic’s data centre strategy is carefully designed, say industry players and analysts.

Xavier Lee, equity analyst at Morningstar, notes that Singapore has demonstrated a “measured” yet “ambitious” push for quality over quantity. He cites the 20-hectare Jurong Island data centre park, which will increase Singapore’s data centre capacity by 50 per cent from 2024 levels, as an example.

Meanwhile, Keppel’s chief digital officer Manjot Singh Mann believes that Singapore has the potential to become a “very significant” digital hub to run the most critical and expensive AI applications. The country’s strengths in policy, execution and connectivity can be applied beyond AI training to more intelligent workloads, such as those deployed in banking or manufacturing, he notes.

“Training loads require much higher (data centre) capacity and much larger pieces of land,” says Mann.

On the other hand, intelligent workloads need to be closer, monitored and more secure. “Those workloads require a hub, and that hub is Singapore,” he adds.

Lee echoes this view, pointing to Singapore’s unique position of not having to directly compete with other Asean nations for data centres.

“Investors should view the region as a single, symbiotic ecosystem. Singapore serves as the brain for latency-sensitive, high-value workloads, while Johor and Batam provide the industrial scale for heavy AI model training,” he says.

Mann also notes Singapore’s desire to remain as the primary hub for subsea cables carrying data centre traffic through the region, which will help it remain a vital connectivity node between East and West.

Providing low-latency data connections for high-volume trading will boost Singapore’s financial sector, which accounted for about 14 per cent of its 2024 gross domestic product.

The data centre sector alone added S$2 billion annually to Singapore’s economy, according to a 2023 Amazon Web Services (AWS) study. This was nearly half the size of the entire retail sector and larger than the hospitality sector.

Data centres also created several thousand high-paying and high-productivity jobs, per the study, with wages for such roles 35 per cent above the national average and labour productivity 2.6 times higher.

Land is the limit

In the second quarter of this year, Singapore ranked eighth in Asia in terms of total data centre capacity, according to Cushman & Wakefield.

China was the runaway leader, while the city-state’s northern neighbour, Malaysia, still dwarfed Singapore’s capacity. Looking ahead, experts believe the city-state will remain capacity-constrained compared with its Asean neighbours despite the 700 MW Jurong Island expansion announced in October.

Beyond land scarcity, the country also faces power and water consumption limitations.

Another “major constraint” is the requirement for green power, says Morningstar’s Lee. He notes that Singapore’s sustainable growth plans call for strict energy efficiency and low-carbon sourcing, which narrows the options for data centre construction and operation.

However, Keppel’s Mann believes that the Jurong Island green data centre park will largely resolve the issue. The company plans to begin construction on the world’s first large-scale floating data centre at the Loyang Offshore Supply Base in 2026, with completion targeted for 2028, which could help relieve land and cooling constraints.

Still, land limitations are far from a death-knell for the future of data centres in the country.

Turner & Townsend director Alex Quek believes that Singapore will be a significant player in the data centre race, albeit in the context of sustainability rather than pure capacity.

He says the push for sustainable data centres will position Singapore as the region’s top “digital demand command centre” for AI and green energy by 2030.

On the geopolitical front, Singapore’s stability is a key advantage that sets it apart from its regional peers, says OCBC Investment Research’s head of research Carmen Lee.

Limited power

Another key constraint Singapore’s data centres face is electricity supply, says OCBC’s Lee. The city-state has already begun efforts to “future-proof” its power grid, with consistent power delivery to data centres being  a “far greater consideration” than issues such as land limitations.

Keppel’s Mann and OCBC’s Lee note that Singapore’s land scarcity and Green Plan have driven simultaneous innovations and efficiencies in power, water and land.

Such a sustainability push could also unlock a 2.8-fold job growth and an 8.9-fold economic boost in a “green growth” scenario, according to the 2023 AWS study.

While OCBC’s Lee says it is unlikely that data centres will exhibit double-digit demand and investment growth from 2026, they could still show “high single-digit” growth of about 7 to 9 per cent, both organically and due to regional trade.

Meanwhile, Quek says a significant part of Singapore’s data centre future likely involves retrofitting “aged” data centres to meet AI sector demand – particularly in terms of reliability. This, he says, could help drive data centre construction demand from 2026 onwards.

However, with fears of an AI bubble intensifying, it is unclear whether AI-linked data centre demand will last and how badly the sector would be hit if the bubble pops.

OCBC’s Lee says that while there has been an “over-investment” in AI, the third-quarter earnings of AI-focused tech companies such as Nvidia and Meta had “somehow” been strong enough to allay fears. Had earnings not followed investment, then there would have been cause for alarm, she notes.

Should an AI market bubble burst, the fallout would be seismic, with the dampening effect on data centre demand likely felt through 2029. As Lee observes, most companies involved in the data centre space have commitments in 2026, and the “investment cannot stop immediately”.

South-east Asia’s data centre outlook

With Singapore facings constraints, the race among its Asean neighbours to absorb the spillover demand for data centres is heating up.

While Malaysia is a frontrunner in the region, operators are also looking elsewhere amid its own resource constraints and increased regulatory oversight, said a BMI report in November. 

“Malaysia remains an attractive destination for data centre investment, but tighter controls in power allocation and approvals mean that projects may take longer to get up and running,” says Muhd Syafiq, JLL’s data centre research director for Asia-Pacific. 

This comes as electricity tariff hikes threaten to increase operators’ power costs and permit processes for data centre projects seeking approval are tightened.

BMI technology analyst Alex Kheder says: “Rising land acquisition costs and emerging signs of saturation, particularly in Johor, threaten the long-term sustainability of (Malaysia’s) leadership.” 

As operators seek lower-cost alternatives, Thailand – with a surplus of energy resources – is absorbing some of the spillover demand, says Delta Electronics (Thailand) chief executive officer Victor Cheng. 

Thailand’s data centre market remains in the nascent stages of operational maturity, but its Eastern Economic Corridor has clinched investments from tech giants such as Google and Amazon.  

Vietnam has also grown more aggressive in courting data centre buildout, Cheng observes. 

Over the next five years, he sees Vietnam’s data centre growth potentially surpassing that of Indonesia, whose market is constrained by grid and transmission challenges.

Similarly, Kheder notes that Vietnam appears set to become an increasingly competitive regional player beyond 2026, with its data centre scene rapidly catching up amid comprehensive regulatory reforms, improving infrastructure and data sovereignty mandates.

Still, Malaysia’s ability to serve both its own and Singapore’s market efficiently remains a “core advantage” in the short-to-medium term, he says.

“Continued dominance will depend on Malaysia’s capacity to address infrastructure constraints and maintain cost competitiveness amid intensifying regional competition,” he adds.

That edge can be maintained if it focuses on core areas such as smart power allocation, stronger connectivity and streamlined processes, says Syafiq.