AI adoption drives Australia’s data centre investment and demand

Rapid AI adoption, along with hyperscale cloud growth and facility upgrades, is driving increased data centre demand in Australia which remains one of the most attractive data centre markets for investors globally, new CBRE research shows.

The Why Australia for Data Centres report found Australia’s secure energy grid, robust regulatory framework and stable political environment provide investors with long-term certainty in an increasingly competitive Asia Pacific landscape.

CBRE’s Head of Industrial & Logistics and Data Centre Research Australia Sass Jalili says Australia’s investment appeal is underpinned by yield stability, long lease terms, and strong credit covenants, which together deliver attractive risk-adjusted returns.

CBRE forecasts Australia’s live data centre capacity is expected to increase from approximately 1.4GW in 2025 to around 1.8GW within three years. However, this still falls short of projected demand, resulting in an estimated supply gap of 0.7 to 1.7GW by 2028.

Major challenges for data centre growth and development include elevated construction costs, tightening site availability and access to adequate power supply.

Ms Jalili added the uptake of AI is driving a new phase of data centre growth in what is already a rapidly evolving sector.

 "Australia’s data centre sector has undergone significant transformation in recent years, evolving from what was once considered a niche infrastructure play to a highly sought-after real estate asset at the forefront of tech innovation,” Ms Jalili says.

“Australia combines rising AI-driven demand, resilient pricing, and a globally competitive cost base, making it one of the most attractive markets for data centre investment. Sydney and Melbourne have emerged as core hubs within the Asia Pacific network, attracting both domestic and offshore capital,” Ms Jalili added.

Based on the pipeline of committed projects, CBRE forecasts Australia’s investible universe for data centres will grow by around 50% in the next four years to total circa A$46 billion.

CBRE’s Pacific Data Centres Capital Markets Director, Darcy Frawley notes investment in data centres has continued to build momentum in recent years, with institutional capital flows continuing to strengthen Australia's investment case

“Institutional capital inflows are accelerating and investor confidence in Australia’s data centre sector is expected to continue to strengthen over the remainder of the decade – with the investable universe expected to grow to around AUD 46 billion by 2029. Low vacancy rates and solid underlying market fundamentals – underpinned by AI and cloud growth - are set to provide a strong platform for investors to scale within the Australian market,” Mr Frawley said.

“Alongside hyperscalers, the rise in AI has led to the emergence of a fast-growing class of ‘NeoCloud’ customers who are beginning to drive colocation demand. NeoCloud are AI-Native and digital-native companies, like OpenAI and Zoom, that scale rapidly but lease large blocks of colocation capacity rather than building their own hyperscale campuses.

“Australia's data centre supply pipeline is heavily pre-committed, vacancy now sits at just 12%. These supply pressures, combined with longer lead times due to material shortages are expected to continue to place upward pressure on Colo rental rates. At the same time, the size of individual lease commitments is increasing, as hyperscalers and enterprises secure larger, longer-term blocks of capacity in anticipation of future demand,” Mr Frawley added.