BMI Country Risk and Industry Research said Tuesday that strategic consolidation is driving Johor to lead Malaysia’s digital infrastructure growth.

The research house said in a note that platforms continue to strategically allocate capital towards the most attractive destinations to increase capacity for cloud computing and artificial intelligence (AI) use-cases.

For some, like Yondr, this includes securing financing for an upcoming campus in Johor, while for others, namely Keppel’s REIT (Real Estate Investment Trust), have divested away from the less popular, Cyberjaya.

“While the latter could be as a result of Cyberjaya reaching capacity or the assets coming to the end of their lifecycle, the former continues to be a dominant destination for investment due to its own inherent components,” BMI noted.

According to BMI, the artificial intelligence (AI) revolution could be seen as an inflection point for infrastructure, with investment increasing into this asset class.

The asset class has however migrated away from traditional infrastructure, towards core infrastructure because of its inherent stability, it said.

It highlighted the increased demand for cloud computing has meant large capital requirements are needed on behalf of the data center provider.

According to BMI, public investors with limited financial resources may not be able to keep to the pace capable by institutional investors, further bolster the role of capital and private markets as a source of financing for the build out of AI-related infrastructure.

With this being an issue prevalent in multiple regions, it noted there will be a distinction to be made between countries unlocking the capabilities of private capital, where the winners here will be those governments that can introduce incentives for institutional investors to direct capital towards driving growth.

“Within Malaysia, we remain consistent with our view that platforms will look to consolidate their developments in the most favourable hubs, such as Johor, where platforms with the deepest availability to financial resources being a key determining factor to their success,

“Our estimates underpin our conviction that Johor will continue to remain attractive, with 253MW of live capacity, higher than both Cyberjaya and Kuala Lumpur, with 74.7MW and 45.3MW, respectively,” it said.

BMI estimates for market shares, based on live capacity, exhibits that GDS International, now rebranded as DayOne, is the leader among the Malaysian market as it commands a 19 percent market share, followed by Yondr (15 percent), PDG (14 percent), AirTrunk (13 percent), BridgeDC (10 percent) and YTL (8 percent).

It noted the focus continues to be placed on securing the land and power in the areas that are most appealing to hyperscale customers, notably cloud service providers (CSPs) and large internet companies.

For Keppel’s REIT, Johor is not a relatively risky portfolio bet, since historical data demonstrate continued demand for capacity in the region, where there may be plans to double down on their developments in Johor, with the Cyberjaya divestment adding to the funding needed for the expansion, said BMI.

BMI opined that financing will remain a crucial part of expansion within Malaysia, exacerbated by the more saturated and competitive nature of key markets such as Johor.

According to the research house, the $900 million loan facility provided to Yondr is expected to be used to fund
construction and initial operations, expenses which are becoming unfeasible in less digitally mature regional markets.

It also noted DigitalBridge’s acquisition of Yondr is expected to provide the financial backing to expand into markets with a higher total cost of ownership, however, fundraising for future funds will prove significant, with efforts linked to an acquisition to the alternative asset manager and the prospective IPO of data center operator, Switch.

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