Australia is well-positioned to benefit from booming data centre demand, with its Asia-Pacific location, robust regulatory framework, skilled talent pool, and abundant wind and solar resources highly advantageous to hosting facilities.
Recent estimates show the Australian data centre market experienced a 40-fold expansion over the last two decades, with two-thirds of the growth just within the last five years. However, looking ahead, major challenges for data centre growth and development include elevated construction costs, tightening site availability and access to adequate power supply.
Real estate services and investment firm CBRE has forecast an increase in Australia’s data centre live capacity from about 1.3 gigawatts in 2025 to about 1.8 gigawatts within three years.
However, this will still fall short of projected demand, with an estimated supply gap of between 0.7 and 1.7 gigawatts by 2028.
CBRE said Australia’s investment appeal was underpinned by yield stability, long lease terms, and strong credit covenants, which together delivered attractive risk-adjusted returns.
It added: “Investors are increasingly pursuing greenfield developments, strategic acquisitions, and build-to-suit projects, with growing interest in partnerships and joint ventures to secure power-ready sites.
“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 worldwide.”
There are an estimated 250 properties across Australia, with most in Sydney, Melbourne, and Canberra.
A further estimated 183,000 square metres of data centre space is under construction, with nearly three-quarters of the construction pipeline located in Melbourne.
Growth in the market is led by cloud storage data centres, which store digital data on multiple servers and an operator who is responsible for ensuring clients’ data is available, accessible, and secure.
Co-location storage data centres consist of physical storage space provided by an operator for a client’s own server, with the facility providing the power, cooling, and physical security.
This type of data centre has seen its share of revenue over the past five years decrease as businesses adopt cloud storage. The third type of data centre is managed storage facilities, which enable clients to lease an entire server and industry operator for their use.
Managed facilities offer more control and security, and allow the client to select their own operating system and hardware.
Just under half of all data centres are cloud storage facilities (49.1 per cent), while managed storage makes 28 per cent, and co-location storage 22.9 per cent.
A recent report by valuation and advisory firm M3 Property showed the data centre market in Australia had grown from 37 megawatts of capacity in 2005 to 1,315 megawatts last year, with two-thirds of the growth within the last five years.
This was driven by the digitisation of the economy, increased remote work during the pandemic, and the surge in AI-related computing demand.
Australia’s data centre property market had reached a critical inflection point where demand outpaces supply, M3’s National Director for Specialised Assets, James Ruben, told The Industrialist, with the volume of live data centre capacity taken up by users in 2023 and 2024 exceeding the amount of new supply brought to market for the first time on record.
He said: “The result is a widening gap between supply and demand – this represents the longest sustained period of demand growth exceeding supply growth since records began in 2005, underscoring the sector’s increasing strategic and economic importance.”
ENORMOUS STRAIN ON WATER AND POWER MUST BE ADDRESSED
The M3 report noted that despite the positive growth outlook for the sector, it faced three key challenges: the shortage of available land in major centres, access to a steady power supply and data networks, and high construction costs.
The estimated amount of electricity and water that will be needed to sustain and cool data centres in the future is also a serious issue that has not yet been addressed, and the problem will only grow larger as the market expands and demand increases.
Sydney Water – the largest water utility in Australia – has estimated that data centres’ use of Sydney’s water supply could jump to 25 per cent by 2035.
Data centre electricity demand and the potential subsequent grid stress are similarly looming problems for the industry and communities, the latter to be burdened by higher power bills without any direct benefit.
NSW’s transmission system owner, TransGrid, has formalised eight data centre connection agreements totalling 5.7 gigawatts, which is enough to power more than 1.7 million homes.
Another under-appreciated bottleneck to the sector’s growth involves the network upgrades required to service new data centres.
The M3 report said there was no doubt the data centre sector was rapidly maturing as an asset class and would continue to boom in the coming decade.
It added: “With data generation predicted to explode over the next few years and AI technologies developing rapidly, access to secure data storage and integrated cloud computing facilities will become increasingly important.
“While the sector faces challenges, particularly around the cost of construction and access to sufficient power, it is well placed to meet these challenges through adopting advanced energy saving technologies and locating centres on the edge of major metropolitan areas or in regional centres.”
New research by Mandala Partners – and commissioned by Data Centres Australia – found data centres had invested $3 billion in energy grid infrastructure between 2020 and 2025, with a further $7.2 billion forecast over the next five years.
Of this projected investment, more than $1.1 billion will be directed toward excess capacity available for public use.
Data centres delivered $12.6 billion of gross-value-added per terawatt-hour of energy consumed, according to the Mandala research, higher than other major industrial sectors such as mining and agriculture.
As of December 2025, data centres accounted for about 2 per cent of Australia’s national energy consumption, a usage ratio comparable to that of retail shopping centres. This could increase to about 4 per cent by 2030.
Mandala’s research said data centres were offsetting 70 per cent of their electricity consumption with renewable energy, achieved through power purchase agreements, large-scale generation certificates, and adoption of on-site solar generation, which together account for 1.5 terawatt hours of renewable energy contribution.
A notable finding was that data centres were more than seven times as energy efficient as traditional on-premise computing infrastructure, an improvement attributed to centralised computing processes, utilising advanced chips, and deploying optimised cooling technologies that reduce overall electricity use.
The report also noted that data centre operators were projected to invest up to $1.1 billion in recycled water pipelines and treatment plants over the next five years, exceeding the requirements for internal use and contributing capacity for public benefit.
