Driven by friendly cross-border data flow, the data centre capacity in India, Indonesia and Malaysia is likely to increase at a compound annual growth rate (CAGR) of between 10-25 per cent over the next five years, a report showed on Monday.

Investing in data centres will allow providers such as telcos and real estate companies to diversify their revenue and assets, according to the report by 451 Research, part of S&P Global Market Intelligence.

“There are risks, however, given the capital intensity of the business. Local partnerships and prudent expansion will be key to containing emerging-market risk including evolving regulation, the availability of stable interconnectivity, and power supply infrastructure,” it added.

India and Indonesia have clarified their data protection policies and loosened restrictions on cross-border data flow. The aim is to support foreign investments and align with policies to grow a digital economy.

“The new data privacy bill draft in India suggests easing cross-border data transfer,” the report noted.

According to experts here, the Digital Personal Data Protection bill 2023 will enable easier cross-border data transfers and optimise the storage infrastructure.

The Bill allows data flow to all jurisdictions by default, unless prohibited.

In contrast, Singapore will grow at a modest pace, said the report. This is because it is a more established market with constraints over land and power supply.

“Data centres form a rising asset class in South and Southeast Asia. Rapid digital transformation, accelerated by the pandemic, is fueling a surge in demand for data processing and data storage capacity among consumers and enterprises alike,” the report said.

So-called hyperscalers such as large internet service providers, cloud and network service providers and multimedia companies are also driving higher data demand to expand their business and reduce network latency.

“That said, data centre investments are capital intensive and take time to generate income. This could pressure the balance sheets of providers. Data center providers could also face higher execution risks as they expand into less mature markets in the region,” the report noted.