Data Centre of Attention: Data Centre Developments and Insights for Investors in Southeast Asia

By Parveet Singh Gandoak (partner), Damien Bailey (partner) and Michael Ng (senior associate) from King & Spalding.

The data centre sector in Southeast Asia has experienced remarkable growth in the last few years. This trend is set to continue with the market expected to grow at a CAGR of almost 7% from 2023 to 2027, with an estimated value of US$12.92bn, according to a recent report from advisory consultancy Arizton.

Little surprise that global investors are taking note of these lucrative opportunities that are driven by growth across cloud computing, AI, e-commerce, and adoption of new technologies like IoT, edge computing and 5G. These investors are not only the traditional players in the sector – the data centre operators, telecom operators and digital platforms – but include new entrants with private capital (in particular the pension funds and sovereign wealth funds), asset managers and investment managers investing significant amounts into the sector.

However, a range of important legal issues specific to the region remain for those looking at investing in Southeast Asian data centres. These include compliance with local data protection regulations and zoning laws, navigating complex cross-border data transfer laws, addressing sustainability concerns, ensuring cybersecurity measures, and understanding local policies and incentives. It is critical that investors are familiar with key trends and legal developments and how to navigate these considerations to safeguard their investments and mitigate risks.

Location, Location, Location

Globally, the rise of “edge computing” (the practice of processing data and performing computational tasks closer to the source of the data, rather than sending the data to a centralized data centre or cloud for processing), live streaming services and other computing paradigms which require low latency and high-speed connectivity, has led to an increased demand for localized or regional data centres which are physically closer to users or where data is created, as opposed to the traditional model where data centres are often located offshore. Closer geographical proximity is essential for these computing networks which rely on low latency or ‘lag’ and high speeds for their use-case.

Local or regional data centres also reduce the costs of transferring data to and from the cloud, and help address local ‘data sovereignty’ regulations, (which many Southeast Asian countries have implemented) that require personal data to be stored and processed onshore. For example, Indonesia’s Personal Data Protection Law, enacted in October 2022, permits personal data to be transferred outside of Indonesia only where certain stringent security measures are fulfilled. Vietnam’s Decree No. 53/2022/ND-CP, which took effect on 1 October 2022, clarifies some important aspects of the Law on Cyber Security including requiring domestic and certain foreign companies to store personal data locally. Thailand has also issued multiple data protection guidelines to supplement the Personal Data Protection Act, including setting out the principles under which personal data is stored and requiring the consent of individuals to be obtained before personal data can be stored.

Further, several governments in the region now require the cloud providers to have an onshore presence if they are to provide cloud services to government agencies, regardless of the type of data that is being processed. There is also a new wave of data privacy regulations with many countries – both regionally and globally – currently reviewing and revising their data privacy laws to make them

more appropriate and relevant to today’s digital environment. This will result in a further increase in the trend of data nationalism which has been building for several years.

Combined, these factors have driven, and will continue to drive, demand for data centres in-country and regionally across Asia-Pacific. This demand is for both hyperscale data centres and colocation data centres.

Investors will need consider the financial viability of in-country colocation data centres, which lack the inherent scalability of hyperscale data centres. Real estate in commercial or urban centres is often costlier than that in remote industrial estates, eating into profitability. That said, the market for edge computing is expected to grow, with the International Data Corporation forecasting that worldwide spending on edge computer will hit $208 billion in 2023. Advancements in components of the edge computing technology stack (i.e., hardware, connectivity, and software) may allow for efficiencies that were previously unavailable and could make an in-country colocation data centre use-case financially viable.

Compliance with complex local zoning laws, licensing, and permitting regulations will also be critical as data centres are often classified as industrial facilities, which may not be permitted in central business districts or urbanized commercial zones. Developers would also have to rethink and adapt mechanical, electronic, and plumbing (MEP) related infrastructure that would otherwise be easily constructed on a greenfield hyperscale site.

Going Green

Globally, data centres consume around 4% of the world’s electricity, according to research from Wavestone, and contribute to 1% of global greenhouse gas emissions, according to As a result, data centre operators are under increasing pressure from regulators, customers, and investors to be more environmentally friendly. Singapore lifted its three-year moratorium on new data centres in 2022, and now requires data centres to pass stringent energy efficiency standards, including a requirement of a power usage effectiveness (PUE). PUE refers to the amount of power consumed by a data centre, divided by the amount of power used to operate the IT equipment at the site. A lower value represents higher efficiency. The Singapore IMDA suggests a PUE of no more than 1.3. Similar requirements are likely to be introduced by Thailand and Malaysia, which currently lead the charge in green data centre development. YTL Power International and Sea Group are jointly developing a green data centre park based in Johor, Malaysia, slated to become operational in 2024, which will be powered by solar energy and have ultra-low latency network connections to Singapore.

Investors considering captive renewable energy power plants should be aware of the legal restrictions in various countries. For example, Indonesia permits electricity consumers to establish captive power plants, however, they are required to obtain all necessary electricity operational licenses and permits for these facilities, which can be very time consuming. The potential intermittency of renewable energy is also a key factor to address as data centres require 24/7 power. Green energy storage solutions, such as li-ion batteries, hydrogen or green ammonia are potential solutions, but are expensive and at nascent stages of their development.

Keeping it cool

Data centres are quite literally becoming hotter! The increased computational demands of AI, virtual and augmented reality, and edge computing increases power consumption and heat production. The profitability of a data centre is directly related to its ability to control its power consumption while

keeping its servers cool, as an efficient cooling system allows it to increase server density and aggregate capacity. Though cooling technology has evolved from air-conditioning entire server rooms to in-row cooling designs which draws heat away from server rows with fans cooled with refrigerant, novel ideas for cooling are needed to meet escalating computational demands and offer investment opportunities.

In Singapore, floating data centres have been proposed to harness seawater as an alternative cooling method, in addition to be being a way to reduce land use. Other alternatives include using the ‘cold energy’ released by the liquified natural gas (LNG) re-gasification process. Singapore, being a major user of LNG for its energy needs, is investigating possible use-cases to harness this cold energy, which would otherwise be released into the ocean as waste byproduct. Microsoft has even successfully trialed an underwater data centre.

Given the importance that physical factors have on the financial performance of a data centre, lenders to data centre investments are increasingly including covenants to ensure optimal levels of temperature and humidity. This is a legitimate concern for lenders given that off-take agreements often contain rebate or credit mechanisms if such thresholds are breached, which may result in cashflow disruptions to the borrower. Data centre investors considering debt finance to fund their investments should be mindful of these covenants as they may need to limit server density or require significant capital investment on cooling infrastructure in order to avoid a loan default.


While South Korea, Japan and Singapore have been the traditional hubs for data centres in Asia, secondary markets such as the Philippines, Indonesia, Thailand, and Vietnam are set to see huge growth in this sector as local governments are providing substantial tax and other fiscal incentives. For example, Indonesia provides a corporate tax rebate of up to 50% for investors in pioneer industries, including data hosting and processing. In the Philippines, data centre operators outside Metro Manilla are entitled to income tax holidays ranging from 4 to 7 years, reduced corporate income tax rates, enhanced tax deductions, and tax rebates on purchases of equipment and other capital expenditure. Thailand is offering an 8-year income tax holiday, withholding tax, and VAT exemptions, and an overall relaxation of foreign ownership and land-use restrictions for data centre investors.

However, investors should carefully evaluate these incentives against the higher up-front costs for data centre investments in these markets as they may lack existing fiber connectivity, power infrastructure, and a trained workforce to operate and maintain the facilities. It is critical to seek tax structuring advice to ensure compliance with the requirements of the tax incentives in each respective jurisdiction.

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