With Singapore putting the brakes on new data centers, Malaysia is wooing investments with tax breaks and other perks to become the region’s next big data hub.

Located a 30-minute drive from the Singaporean border, Iskandar Puteri in Malaysia’s southern Johor state has emerged as a hot spot for new data center construction.

China’s GDS Holdings last month began operating a 69.5-megawatt facility there — its first outside China. U.S.-based Equinix is also building a new $40 million data center in the area.

Construction in Johor picked up after Singapore, the current data hub for Southeast Asia, paused new development in 2019 due to the land and energy the centers require. The moratorium has since been lifted, but cost and land constraints are expected to continue hampering new large-scale projects there.

Meanwhile, demand for data centers is only growing across Southeast Asia as its economy grows, with countries across the region now courting investments in hopes of developing into a new data hub.

Malaysia has been particularly successful, aided by its cheap land and electricity as well as its proximity to Singapore. The country secured 113 MW in new data center take-up in 2022, roughly four times as much as Indonesia or Thailand, according to U.K.-based consultancy Knight Frank.

Malaysia’s data center market will grow 72% from 2022 to $2.25 billion in 2028, outpacing the 47% growth rate for all of Southeast Asia, predicts Ireland’s Research and Markets.

Government policy has also played a role. Malaysia launched the Digital Ecosystem Acceleration scheme as part of its tax reforms in 2022, waiving taxes on all qualifying investments by digital infrastructure providers.

The government is working with state-run utilities to ensure data centers receive a stable supply of electricity. Last month, it unveiled the New Industrial Master Plan 2030, which includes the promotion of digitization as a major area.

“Our target for Malaysia’s data center industry is to achieve a revenue of close to $800 million by 2025” from $400 million currently, said Tengku Zafrul Abdul Aziz, minister of investment, trade and industry.

Japan’s NTT Data, through a group company, started up its sixth data center in the Cyberjaya campus, located near the Malaysian capital of Kuala Lumpur.

“In order to turn Malaysia into an IT hub, the government is actively luring related companies, and has adopted corporate tax exemptions and other incentive measures,” said Takeshi Kimura, head of NTT Data group’s data center business in Southeast Asia.

Other countries in Southeast Asia are pouring resources into data center investment as well. Not only is there demand from Singapore, but companies in the West are moving to circumvent mainland China due to frictions with the U.S.

Last year, Google announced it will build cloud service data centers in Malaysia, Thailand and New Zealand. In Thailand’s case, the government is offering corporate tax breaks over eight years, among other incentives.

Also last year, the Vietnamese government started requiring companies to maintain customer data within the nation’s borders. New data center projects are anticipated to accommodate the extra data storage volume. In the Philippines, Globe Telecom and fellow telecommunications provider PLDT are also investing in data centers.

Because data centers consume a large amount of electricity, minimizing the carbon footprint will be an issue. Efforts are taking place in Malaysia and Singapore to raise power efficiency or increase the usage of renewable energy.