Tightening supply of suitable land and construction delays set to impact Australia’s data centre market

Construction times for new Australian data centres have increased significantly and this will have a knock-on effect for co-location rental pricing according to new CBRE forecasts.

In a newly issued Q1 Asia Pacific Data Centre Trends report, CBRE notes that new data centre supply is almost fully contracted amid strong AI-driven demand and rapid cloud adoption.

“Due to long lead times for data centre construction off the back of shortages of certain materials such as chips and transformers, construction times have blown out and this will constrain supply in the medium to long term,” said Darcy Frawley, CBRE’s Pacific Director – Data Centres.

The report also highlights that Australian corporates are following the trends in the US and Europe by moving away from in-house model towards a third-party co-location approach, which has increased demand from data centre operators for land in Sydney and Melbourne.

“Many industrial developers across the country are now considering power shell data centre developments to obtain exposure to the asset class,” Mr Frawley said.

“While data centre operators have historically been reluctant to partner with industrial landlords, some groups are now considering this form of ownership as land and power becomes harder to procure in key markets.”

Power supply is a key trend to watch according to the report, with the adoption of renewable energy lagging the current and future requirements.

“Against this backdrop, locations such as Perth and Queensland, where renewable energy projects are more prominent, could potentially attract a new wave of data centre construction,” Mr Frawley said.

“However, Sydney and Melbourne remain the favoured locations for data centre operators despite ongoing challenges around power availability in the key customer zones.”

On the investment front, the report notes that while activity was limited in 2023 due to a lack of investible product, the data centre asset class remains highly sought after.

“Other investment trends include Australian super funds making large platform investments into Europe and elsewhere around the globe. Examples include AustralianSuper’s acquisition of a minority stake in Vantage EMEA for around US$1.6 billion and Aware Super’s US$500 million investment in US-based operator Switch.