Energy, water supply must be managed to protect public: Academic

PETALING JAYA: Johor’s data centre boom, long a magnet for foreign investment, is clashing with reality as residents protest over dust and fears of water shortages, the first demonstration of its kind in Malaysia.

The protest, staged outside a data centre construction site last weekend, reflects growing unease over the sector’s impact on local utilities.

Residents alleged that construction activities had caused dust pollution and raised concerns about potential strain on the state’s water supply.

While data centres generate jobs, attract foreign capital and stimulate construction, engineering and digital ecosystems, they also consume vast amounts of electricity and cooling water – resources shared with households and other industries.

Universiti Teknologi Malaysia property economics and finance expert Assoc Prof Dr Muhammad Najib Razali said demand for data centres remains strong because they anchor foreign direct investment and boost industrial land values.

“Even from a real-estate perspective, data centres have driven strong demand for large-format industrial land, pushed up prices in selected corridors and encouraged the rise of master-planned industrial parks.”

However, the dynamics are changing.

“The question is no longer just whether land is zoned for data centres but whether it could be supported by long-term utility certainty.”

Johor currently hosts 15 operational data centres, with dozens more under development, according to media reports.

Muhammad Najib said regulators are signalling that water and energy allocations must now be carefully managed to protect residential and essential industrial users.

“Treated water and grid power are no longer assumed to be available on demand.

“They are becoming conditional inputs, subject to caps, efficiency requirements and policy scrutiny.”

The impact on real estate is immediate.

“Industrial land that could demonstrate utility readiness such as access to alternative water sources, reclaimed water systems, on-site recycling or enhanced energy efficiency are becoming more valuable and bankable.

“The sites face fewer delays, clearer permitting pathways and stronger interest from hyperscalers and institutional investors.

“In contrast, land that relies entirely on municipal water or standard grid connections faces greater uncertainty, even if well-located.”

He said similar pressures have already affected other markets, citing rapid data centre expansion in countries such as the Netherlands and Ireland, which prompted governments to tighten approvals once utilities came under strain, immediately affecting land values.

“From a property perspective, water availability is becoming a de facto planning control, much like plot ratio or setback requirements.

“Projects that exceed utility thresholds face redesign, delay or relocation.”

He also said energy is equally critical, adding that as continuous, large-scale power users, data centres put pressure on grid capacity and reliability.

“Developments incorporating energy efficiency, redundancy or on-site solutions are better positioned to secure approvals and financing.”

Muhammad Najib said the data centre boom is driving a strategic pivot for developers.

“Value creation is shifting away from raw land banking toward infrastructure-integrated real estate.

“Master-planned parks that bundle land with water solutions, energy resilience and regulatory alignment are increasingly favoured.”

He added that for investors and lenders, due diligence now extends beyond title and zoning to long-term utility agreements and stress testing against potential policy changes.

“For Johor, the data centre boom promises jobs, digital ecosystem growth and sustained foreign capital inflows.

“But policymakers must ensure these gains do not come at the expense of water security or grid reliability. Growth would continue but it would be channelled toward projects that could expand without drawing disproportionately on public utilities.

“In this environment, water and energy are no longer background infrastructure issues. They are emerging as determinants of land value, development timing and investment risk.”

 The Sun Malaysia