The construction and operation of data centers has become ubiquitous in the Malaysian state of Johor. (Source photos by Ken Kobayashi)Â
Tech Asia
Soaring costs send builders and operators to new, possibly riskier funding strategies
December 31, 2025 06:00 JST
Johor, Malaysia is rapidly becoming the epicenter of data center construction, but the booming industry is facing a critical challenge: escalating costs. Builders and operators are increasingly turning to unconventional funding methods to keep projects afloat, a trend that introduces new layers of risk. The rising expenses are impacting the industryS ability to balance growth wiht financial sustainability.
- Johor,Malaysia,is a key hub for data center advancement in Southeast Asia.
- The trend reflects a broader industry challenge of balancing growth with financial sustainability.
The cost of land in areas like Johor, a state in malaysia, has climbed dramatically as tech companies scramble for space. Beyond land acquisition,the price of essential materials – from concrete and steel to specialized cooling systems – has also increased substantially. Labor shortages and rising wages further contribute to the financial strain. This perfect storm of escalating costs is pushing data center operators to explore innovative, and sometimes precarious, funding solutions.
one increasingly popular strategy is the sale-leaseback arrangement. Companies sell their data center assets to investors and then lease them back, freeing up capital for other investments. Another avenue is tapping into infrastructure funds, which specialize in financing large-scale projects like data centers. While thes methods provide immediate financial relief, they also come with potential drawbacks.
“The pressure to expand capacity is immense, but the financial realities are forcing us to be creative,” said one industry executive, speaking on condition of anonymity. “We’re looking at every possible option to maintain our growth trajectory without jeopardizing our financial stability.”
The Risks of Option financing
While sale-leaseback arrangements and infrastructure funds can alleviate immediate financial pressures, they also introduce new complexities. Selling assets means relinquishing ownership and control, potentially impacting long-term strategic decisions.Lease agreements can also be restrictive, limiting flexibility and potentially increasing operating costs over time.
infrastructure funds, while providing capital, often demand a important return on investment. This can translate into higher operating costs for data center operators, potentially impacting profitability. Furthermore,the involvement of external investors can introduce additional layers of governance and oversight.
What are the biggest risks associated with alternative data center funding? Loss of ownership, restrictive lease terms, increased operating costs, and complex governance structures are all potential downsides.
The situation is especially acute in Southeast Asia, where the demand for data centers is surging due to rapid digital transformation. Countries like Malaysia, Singapore, and Indonesia are attracting significant investment in data infrastructure, but the region also faces unique challenges related to land availability, regulatory hurdles, and political stability.
The shift towards alternative funding strategies is not limited to Southeast Asia.Data center operators globally are grappling with similar challenges, as the demand for data continues to outpace the supply of affordable infrastructure. The industry is at a critical juncture, where balancing growth with financial sustainability is paramount.
As the industry navigates these turbulent waters, a cautious and strategic approach to funding will be essential. Operators must carefully weigh the risks and rewards of each option, ensuring that their financial decisions align with their long-term strategic goals. The future of data center expansion hinges on finding enduring and innovative funding solutions.
