Indonesia Emerges as Data Center Hotspot as Singapore, Malaysia Tighten Rules

Indonesia is rapidly becoming a key destination for data center development, now ranking as the second-largest driver of industrial land demand, according to Jones Lang LaSalle (JLL) Indonesia. Farazia Basarah, Country Head and Head of Logistics & Industrial at JLL Indonesia, highlighted this shift, noting that data centers have surpassed many traditional industries in their demand for land.

Historically, Singapore was the primary hub for data centers. However, the city-state's government imposed a moratorium on new construction due to the significant electricity consumption associated with these facilities. This led investors to look towards Johor Bahru, Malaysia, and Batam, Indonesia. Yet, in Malaysia, data center expansion into residential and commercial areas prompted local government prohibitions following resident protests.

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Aside from manufacturing, the primary contributors are clearly those related to copper and mining, but the second-largest source of demand comes from 'other services', specifically data centers.

This situation has created a prime opportunity for Indonesia to absorb the growing demand for data centers, with Batam and Jakarta emerging as key locations. The country's high internet penetration and a tech-savvy young population further fuel this growth. The Indonesian government, however, is keen to move beyond merely offering rental services and electricity. It is actively promoting the development of a comprehensive domestic technology industry ecosystem, envisioning facilities like Nongsa Digital Park in Batam as future "AI factories."

Indonesia aims to cultivate AI technology production centers, including microchip manufacturing, to generate significant multiplier effects and create jobs. Farazia emphasized that data centers typically create fewer jobs than manufacturing projects. The government seeks to avoid the pitfalls experienced elsewhere, such as in Malaysia, where data center construction has drawn criticism for its perceived limited economic impact compared to traditional factories. The surge in demand is largely attributed to the escalating needs of artificial intelligence, with current requirements for a single data center significantly larger than just two to three years ago.

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We do not want to end up like Malaysia, where complaints have arisen, similar to those possibly seen in the United States, regarding data center construction, due to the perception that the multiplier effect is not as significant as that of building a factory.