South-east Asia's datacentre construction boom has ground to a halt as governments grapple with severe constraints on power and water. Thailand paused construction on 49 datacentre projects and approval decisions on 117 more in September 2026, amid growing concern about the lack of sufficient regulatory detail and monitoring. In neighbouring Indonesia, the governor of West Java halted a datacentre project due to missing permits and an incomplete environmental assessment. The region's rapid expansion came after Thailand's board of investment approved datacentre projects totalling a planned investment of $27bn from TikTok, UAE-based Skyline datacentre and Singapore's Bridge datacentres earlier in 2026.
South-east Asia has emerged as a major hub for datacentre expansion, driven by rising global demand for AI infrastructure. According to real estate firm Cushman and Wakefield, the region holds about 50 per cent of Asia Pacific's under-construction datacentre capacity, with Malaysia and Thailand comprising a large portion. Malaysia's state of Johor has become the largest datacentre hub in south-east Asia, attracting $40bn of datacentre investment as of 2026, according to Menteri Besar Onn Hafiz Ghazi, the state government head. Johor's operational capacity grew more than tenfold from 94MW in 2023 to 1,110MW in 2026, with 3,088MW additional capacity under construction or planned. Major operators include Microsoft, which announced a $2.2bn investment for cloud and AI infrastructure across Malaysia in 2024, and Australian company AirTrunk, which plans to invest $3bn to double its Johor datacentres from two to four.
Energy demands pose the most immediate challenge. Energy consultancy Wood Mackenzie estimates that datacentres in Johor already account for 24 per cent of the state's total power consumption today, which could grow to 40 per cent by 2035. Alvin Tan, research analyst at Wood Mackenzie, warned that rapid growth could create localised grid bottlenecks and increase the need for transmission network upgrades and new power supply capacity. Thailand's energy minister, Akanat Promphan, said datacentres require large amounts of power from expensive imported gas and called for a new electricity user category with higher tariffs. Water scarcity presents equally pressing concerns. Johor is prone to droughts, and current operational datacentres are estimated to need about 675m cubic metres of water per day. In Thailand, residents in the Eastern Economic Corridor have raised concerns about pressure on depleted water reservoirs, with the Khlong Luang Reservoir in Chonburi identified as a primary flashpoint.
Communities are increasingly vocal about the environmental toll. Johor saw its first public protest against datacentre construction in February, with demonstrators picketing a project by China's ZData Technologies to express concerns about dust pollution from construction near residential areas and potential impacts on water supply. Jie-Sheng Tan-Soo, an assistant professor at Singapore's Lee Kuan Yew School of Public Policy, noted that datacentres generally generate fewer long-term jobs than many other industries requiring comparable land, electricity and water resources. Governments have begun tightening approval processes. Malaysia established a datacentre taskforce to review new projects with focus on energy and water security, while Johor announced it would no longer approve Tier 1 and Tier 2 datacentres, which use up to 50m litres of water per day.
Some operators claim progress on efficiency. Bridge datacentres built a water reclamation plant and pipe network in Johor, while AirTrunk partnered with sewage treatment operator Johor Special Water in April to recycle wastewater for its datacentre operations. However, sustainability challenges remain. Microsoft's published data on Power Usage Effectiveness, an industry metric measuring datacentre energy efficiency, shows that its Asia-Pacific facilities are the least energy efficient globally, despite the company stating it is exploring south-east Asian clean energy projects to fuel its datacentres.
For savers, borrowers, businesses and investors in the UK, this slowdown in Asian datacentre expansion could affect global cloud computing costs and the performance of investments in major technology companies relying on regional infrastructure.