Lead: In early 2026, southeast Asia appeared poised to become a global epicentre of digital infrastructure expansion—driven by surging artificial intelligence demand and ambitious investments from multinational tech firms. Yet just months after the region’s datacentre sector surged into prominence with $27 billion in approved projects across Thailand, Malaysia, and Singapore, progress has stalled. What began as an industrial wave is now facing unprecedented headwinds: power shortages, water scarcity, and growing public resistance are prompting governments to halt or delay construction on dozens of facilities.
The Rise of Southeast Asia's Datacentre Hub
By 2026, southeast asia had emerged as a leading player in global digital infrastructure development within the Asia-Pacific region—despite China maintaining the largest operational capacity for datacentres there. A report by real estate firm Cushman and Wakefield revealed that southeast asia held approximately half of all under-construction datacentre capacity across Asia Pacific, positioning it at the forefront of an AI-driven build-out.
Singapore was long considered the regional leader due to early adoption by major tech firms such as Alibaba and Facebook during the 2010s. However, starting in 2019, the city-state implemented a moratorium on new datacentres citing their high consumption of electricity and water—an issue amplified by limited land availability and strict environmental regulations. Between 2023 and 2026, only 95 megawatts (MW) of operational datacentre capacity were added under this framework, according to Cushman and Wakefield’s analysis.
Malaysia's Datacentre Surge
The shift from Singapore has been most pronounced in Malaysia—particularly within the southern state of Johor. Operational datacentre capacity there grew more than tenfold between 2023 and 2026, rising from just 94 MW to over 1,100 MW by mid-2026. This expansion is now supported by a pipeline of nearly 3,088 MW of additional planned or under-construction facilities, making Johor the largest datacentre hub in southeast asia as of 2026.
Malaysian authorities have welcomed this growth with strong policy support. Menteri Besar Onn Hafiz Ghazi stated that Johor had attracted $40 billion in total investment for its digital infrastructure ecosystem by 2026. Among key investors are Microsoft and AirTrunk—an Australian-based company—both expanding significantly within the state. In 2024 alone, Microsoft announced a $2.2 billion commitment to build cloud and AI infrastructure across Kuala Lumpur and Johor. Similarly, AirTrunk revealed plans to invest $3 billion to expand from two to four datacentres in Johor.
Thailand's Expansion and Regulatory Pause
In Thailand, the board of investment approved major projects early in 2026 involving TikTok (a UAE-based entity), Skyline Datacentre (based in the United Arab Emirates), and Bridge Datacentres (from Singapore). These initiatives collectively represented an initial planned investment of $27 billion—fueling optimism about a new industrial boom in the country’s digital economy.
However, by September 2026, Thailand had taken decisive action: it paused construction on 49 datacentre projects and suspended approval decisions for another 117. The move followed growing concerns over insufficient regulatory details to monitor environmental impacts or energy consumption patterns. According to reports from The Guardian, officials cited gaps in transparency around power usage, water sourcing, and emissions monitoring as key reasons behind the pause.
Energy Demand and Grid Strain in Johor
Datacentres are among the most electricity-intensive facilities globally—especially those powered by liquid cooling systems that require continuous high-power operation. In Johor alone, current operational datacentres already consume about 24% of the state’s total electrical supply—a figure projected to rise to nearly 40% by 2035 according to Wood Mackenzie, an energy consultancy firm.
Alvin Tan, a research analyst at Wood Mackenzie, warned that this level of consumption could lead to localized grid bottlenecks and place immense pressure on transmission networks. He emphasized that without significant upgrades in power infrastructure or alternative energy solutions, future expansion may become unviable—or trigger blackouts during peak demand periods.
The Water Crisis: A Hidden Threat
In addition to electricity demands, datacentres are notorious for their high water usage—particularly those employing liquid cooling systems common in hot-humid climates like southeast asia. Johor’s current operational facilities consume an estimated 675 million cubic meters (m³) of water daily—an amount equivalent to the annual consumption of over 100,000 households.
Indonesia has also faced similar challenges. According to a report by Tenggara Strategics, many datacentres there operate in lowland areas with elevated humidity and temperature conditions that increase evaporative losses during cooling processes. These environmental factors result in significantly higher per-unit water use compared to cooler or more temperate regions.
Local Communities Face Growing Concerns
The impact on local populations is becoming increasingly visible. In early 2026, Johor witnessed its first public protest against new datacentre construction—organized near residential zones where ZData Technologies was planning an expansion project. Demonstrators raised concerns about dust pollution from ongoing excavation activities and the potential long-term threat to regional groundwater supplies.
Somnuck Jongmeewasin, research director at EEC Watch—a community advocacy group focused on Thailand’s Eastern Economic Corridor (EEC)—highlighted that one of the most critical water sources in eastern Thailand—the Khlong Luang Reservoir—is already under severe strain due to shallow depth and low inflow rates. Despite this, authorities have been piping reservoir water directly into industrial estates hosting multiple datacentres, raising alarms among local residents who rely on it for domestic use.
Public Debate Over Equity and Benefits
Jie-Sheng Tan-Soo, an assistant professor at Singapore's Lee Kuan Yew School of Public Policy, has pointed out a fundamental imbalance: while large-scale datacentre projects generate substantial short-term investment and construction activity, they typically produce fewer long-term jobs than other industries that require comparable levels of land, energy, or water resources.
This disparity fuels public skepticism. Communities are increasingly questioning whether the economic benefits—such as job creation or tax revenue—are being equitably distributed to local populations when environmental costs remain largely unaddressed. As one resident in Chonburi noted during interviews with EEC Watch, ‘We don’t see new employment opportunities; we just see more dust and less clean water.’
Indonesia's Response: Halted Development Amid Regulatory Gaps
In neighboring Indonesia, construction on a major datacentre project within West Java province was halted by provincial governor Ridwan Kamil earlier in 2026 due to incomplete permitting procedures and an insufficiently developed environmental impact assessment (EIA). The decision underscores broader regulatory challenges across the region—where many projects lack comprehensive documentation of energy efficiency metrics or long-term ecological consequences.
The Indonesian government has since emphasized that all future digital infrastructure developments must undergo rigorous EIA processes before any land use approvals are granted. This shift reflects growing recognition among policymakers that unchecked expansion could undermine national sustainability goals and public trust.
Regional Implications for Digital Infrastructure Planning
The slowdowns observed in Thailand, Malaysia, and Indonesia signal a pivotal turning point—not just within southeast asia—but globally—for how datacentres are being developed under climate constraints and resource limitations. While AI-driven demand continues to grow worldwide, the reality is that not every region can support such intensive industrial operations without significant environmental trade-offs or social disruption.
Cushman and Wakefield’s analysis shows that while southeast asia remains one of Asia Pacific's most active digital infrastructure zones—its growth trajectory has now been tempered by practical realities. Without stronger regulatory frameworks governing energy use, water consumption, and community engagement, future expansions may face even greater resistance from both public bodies and local populations.
What Comes Next?
The current pause in datacentre development across southeast asia does not signal a retreat from technological progress—but rather an evolution toward more responsible planning. As governments re-evaluate their policies, the focus is shifting from sheer scale to sustainability: including transparent reporting on power draw, real-time monitoring systems for environmental impact, and inclusive stakeholder consultations before any project moves forward.
Malaysia’s Johor state government has already begun exploring partnerships with renewable energy providers—such as solar farms—to offset some of its growing electricity demand. Meanwhile, Thailand's Ministry of Energy has proposed introducing a new category of ‘high-demand industrial users’ that would be subject to higher tariffs based on actual consumption levels—a move aimed at ensuring fair cost distribution across consumers while incentivizing efficiency improvements.
For now, southeast asia remains one of the most dynamic regions in global digital infrastructure development—but only if it can balance rapid innovation with environmental integrity and social equity. The coming years will likely define whether this sector continues to grow through scale or transitions toward sustainable, community-centered models built upon accountability rather than ambition alone.