Article | Intelligent Investment
Uncovering the surging investor demand for data centres
With the $24 billion acquisition of Australian data centre firm, AirTrunk, we breakdown the prolific growth of this alternative asset class shaping your future.
October 9, 2024
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Private equity giant Blackstone has officially parted ways with $24 billion to acquire the Australian data centre company, AirTrunk, and there are promising reasons why.
The company is responsible for building and operating data centres to meet the demands of increasing cloud and AI capabilities. It currently operates 11 hyperscale data centres across the Asia Pacific region and has been labelled one of the year’s biggest acquisitions of an Australian company.
More importantly, the move reaffirms the positive sentiment surrounding this particular asset class – a trend that was previously detailed in CBRE’s annual Global Data Centre Investor Survey.
Focusing specifically on 2023 revealed that the global data centre market still managed to reach record absorption, despite challenges around power distribution constraints and supply chain delays for electrical components.
These issues have essentially extended construction project timelines and limited the supply availability of data centres in many markets. Combined with strong demand, the result was fewer vacancies and higher rental growth in the asset class.
Zeroing in on the Asia Pacific region and Australia, the same trend is also evident.
“Insatiable demand from major customers for capacity, primarily from continual cloud consumption and a new wave of AI demand, has driven the growth of the asset class,” explains CBRE’s Pacific Data Centres Capital Markets Director, Darcy Frawley.
“Operators are now competing aggressively to increase their data centre footprint to accommodate future business needs. Australia specifically is set to see a large gap between capacity and demand in the medium term, which will lead to significant rental growth and make the sector even more appealing for data centre investors.”
With data centre inventory growing globally by approximately 20% to 25% year-over-year in 2024, there are consistent growth patterns across different global geographies. Sydney currently ranks fifth in regard to the size of the city's data centre inventory and also places seventh globally in terms of net absorption, according to CBRE’s Head of Pacific Research, Sameer Chopra.
“If you think about rents, which in data centre land is measured in kilowatt-hours, they are increasing at levels of about 20% in the U.S, 5% in Europe, and broadly stable in Sydney.”
For global pricing, Sydney, which is considered a large data centre market, ranks in the mid-range with U.S pricing approximately 25% cheaper.
“Sydney has good availability right now, which is attracting these global cloud providers. This availability should also attract clients who are looking at AI computing, but power accessibility remains a real global challenge and that's affecting development timelines,” says Sameer.
It’s a point which leads into the investor realm of renewable energy. Phil Rowland, Chief Executive Officer of CBRE's Pacific Advisory Services, says that there's much to consider around energy transition pathways as data centres, real estate electrification, and electric vehicles place a huge demand on the country’s existing grids.
“This is leading a number of clients to explore real estate related ideas to get exposure to energy thematics, whether it be owning solar farms, wind farms or battery sites.”
Here are the key figures driving investor decisions:
While this lucrative figure may pique the interest of investors, reaching scale in this burgeoning market requires consideration of competitiveness.
“If you want to hit scale in alternatives, it's a bit more challenging,” says Sameer.
“There'll probably be room for only two or three participants to gain an efficient position in each of these alternative sub-sectors, at least over the next three to five years.”
Read CBRE’s 2024 Global Data Center Investor Intentions Survey to learn more about data centre demand in specific parts of the world.
The company is responsible for building and operating data centres to meet the demands of increasing cloud and AI capabilities. It currently operates 11 hyperscale data centres across the Asia Pacific region and has been labelled one of the year’s biggest acquisitions of an Australian company.
More importantly, the move reaffirms the positive sentiment surrounding this particular asset class – a trend that was previously detailed in CBRE’s annual Global Data Centre Investor Survey.
Understanding the potential of data centres
From a global lens, CBRE’s survey researchers noted that momentum will continue through 2024, fuelled by institutional investment and strong underlying fundamentals. This is in addition to society’s growing reliance on data centre facilities and digital infrastructure required for supporting today’s business, commerce and communication needs. These include everyday services powering the latest advances in artificial intelligence (AI), streaming services, digital applications and e-commerce platforms.Focusing specifically on 2023 revealed that the global data centre market still managed to reach record absorption, despite challenges around power distribution constraints and supply chain delays for electrical components.
These issues have essentially extended construction project timelines and limited the supply availability of data centres in many markets. Combined with strong demand, the result was fewer vacancies and higher rental growth in the asset class.
Zeroing in on the Asia Pacific region and Australia, the same trend is also evident.
“Insatiable demand from major customers for capacity, primarily from continual cloud consumption and a new wave of AI demand, has driven the growth of the asset class,” explains CBRE’s Pacific Data Centres Capital Markets Director, Darcy Frawley.
“Operators are now competing aggressively to increase their data centre footprint to accommodate future business needs. Australia specifically is set to see a large gap between capacity and demand in the medium term, which will lead to significant rental growth and make the sector even more appealing for data centre investors.”
With data centre inventory growing globally by approximately 20% to 25% year-over-year in 2024, there are consistent growth patterns across different global geographies. Sydney currently ranks fifth in regard to the size of the city's data centre inventory and also places seventh globally in terms of net absorption, according to CBRE’s Head of Pacific Research, Sameer Chopra.
“If you think about rents, which in data centre land is measured in kilowatt-hours, they are increasing at levels of about 20% in the U.S, 5% in Europe, and broadly stable in Sydney.”
For global pricing, Sydney, which is considered a large data centre market, ranks in the mid-range with U.S pricing approximately 25% cheaper.
“Sydney has good availability right now, which is attracting these global cloud providers. This availability should also attract clients who are looking at AI computing, but power accessibility remains a real global challenge and that's affecting development timelines,” says Sameer.
It’s a point which leads into the investor realm of renewable energy. Phil Rowland, Chief Executive Officer of CBRE's Pacific Advisory Services, says that there's much to consider around energy transition pathways as data centres, real estate electrification, and electric vehicles place a huge demand on the country’s existing grids.
“This is leading a number of clients to explore real estate related ideas to get exposure to energy thematics, whether it be owning solar farms, wind farms or battery sites.”
Breaking down investor sentiment
Beyond the sector trends, CBRE’s survey also placed a spotlight on investor sentiment. The consensus is that data centres are continuing to benefit from greater investment, particularly from new investors.Here are the key figures driving investor decisions:
- 97% of respondents to the latest survey plan to increase their capital deployment into data centres in 2024
- 44% say they will allocate more than US$500 million for data centre investment, an increase from last year’s 32%
- 92% of respondents are allocating more than $100 million to the data centre sector
- Investor appetite is strongest in the higher-yielding opportunistic and value-add segments possessing solid market fundamentals
- 80% of investors say they are interested in opportunistic new development in 2024 which includes ground-up development, re-purposing of existing assets, or redevelopment
- 31% of respondents believe hyperscale build-to-suits are the greatest investment opportunity over the next 12 to 24 months
- Tokyo, Seoul, Singapore and Sydney are the top markets that investors are preferencing in 2024
Consider your competition
Alternative assets, which includes data centres, is an investment market worth $100 billion in Australia.While this lucrative figure may pique the interest of investors, reaching scale in this burgeoning market requires consideration of competitiveness.
“If you want to hit scale in alternatives, it's a bit more challenging,” says Sameer.
“There'll probably be room for only two or three participants to gain an efficient position in each of these alternative sub-sectors, at least over the next three to five years.”
Read CBRE’s 2024 Global Data Center Investor Intentions Survey to learn more about data centre demand in specific parts of the world.