Our appetite for AI and cloud computing is insatiable – and so is investor demand for the data centres powering it.
As this hunger drives ever-bigger facilities and faster lead times, opportunities can be lucrative but complex and eyewateringly expensive, experts warn.
Left to right: Macquarie Technology Group’s David Tudehope and Lisa Brock; NSW Treasurer Daniel Mookhey MP; Macquarie Data Centre’s David Hirst; and Macquarie Technology’s Helen Cox. Picture: Supplied
Knight Frank’s 2026 outlook forecasts 33 gigawatts of new global capacity online within two years – equivalent to more than six times New York City’s average annual energy use – representing a compound annual growth rate of 24.6%.
Australia’s capacity has grown fortyfold in 20 years and is set to rank in the top three globally by the early 2030s, trailing only the United States and India, according to M3 Property’s November report.
Sydney boasts the largest cluster of data centres in the Asia Pacific, with 73 megawatts of capacity across 78 centres, Melbourne with 218 megawatts across 50 centres, the report says.
And there are plenty of top projects in the pipeline, with Microsoft, Equinix, NextDC and GreenSquareDC all expanding here.
A render of Goodman’s 90-megawatt data centre in Sydney’s Macquarie Park, called Project Apollo.
Investment banks and funds are also piling in, realising the opportunity, according to Ray White head of research Vanessa Rader.
“Our ever-increasing requirement for data ensures that there will be continued demand for data centres,” she said.
“We have seen many larger funds and trusts devoted to investing into data centres.”
Matthew Lee, Co-Head of Australian Data Centres at JLL, said continued growth in cloud computing and AI adoption and sustained customer demand was “contributing to strong absorption levels and a corresponding reduction in available data centre capacity, alongside early signs of contract pricing and rental growth”.
“Investor interest in the data centre sector is currently very strong… we expect investor interest to continue growing in the short to medium term,” he said.
Market headwinds
However the global data centre market is also facing some challenges.
CBRE’s Global Data Centre Trends 2025 flags power shortages as the top growth barrier, spurring cloud providers and AI firms to pre-lease space aggressively.
Power concerns are also driving major players like Amazon to consider renewable energy initiatives like solar farms.
A scarcity of water needed for cooling is another issue, according to Mr Lee, alongside rapid tech changes complicating designs and infrastructure.
He added that difficulties more specific to Australia included high taxes as well as labour and construction costs, plus more complex planning and approval processes than other markets.
Artist’s impression of the Goodman Group’s data centre at Artarmon, Sydney
Ms Rader said data centre growth in Australia was limited by scarce developable land in capitals, especially Sydney.
“Availability of suitable land will continue to be a factor, which is why we have seen Melbourne become a hub for data centres,” she said.
The M3 Property report found 75% of new data centre projects under construction in Australia are in Melbourne, with around 183,000 sqm of space in the pipeline.
Investing in data centres
Data centres may be in hot demand by tenants but they’re not easy assets to buy and run, Ms Rader said.
“This isn’t the average investment class. Data centres are very big and expensive assets to purchase and operate. There have been some portfolios transact in the billions,” she said.
ABS data shows fit-out spending on equipment, plant and machinery in Information, Media and Telecommunications hit a record $2.6b in September 2025 – up 143.1% on the year.
The massive costs and fast-evolving tech demands mean they’re typically the domain of institutional investors or sophisticated players with deep-pockets.
Last month for example, Macquarie Technology Group upped its borrowing limit by $50m to fund key equipment for its main data centre build, IC3 Super West in Sydney’s Macquarie Park.
JLL’s Matthew Lee. Picture: Supplied
For investors wanting in on the action, Mr Lee advises them to consider locations with long-term value, customer demand, and core infrastructure like power, water and fibre access.
Would-be investors also need to assess risks like environmental or planning hurdles, and leasing challenges including tenant acquisition costs and timelines.
Data centres are increasingly seen as critical infrastructure rather than traditional property investments, thanks to AI-driven power demands tying them to utilities and electricity grids.
This reclassification is largely positive for investors, offering stable long-term cash flows, cheaper capital, and higher valuations potentially outpacing traditional real estate returns.
Meanwhile strong sovereignty laws – that prevent other nations from compelling access to sensitive data – have strengthened demand among investors seeking secure Australian data infrastructure. However, this hampers foreign investors, who often require onshore ownership, local partnerships, staff and certifications.
Mr Lee said alternative pathways such as investment trusts and listed entities can also grant exposure to data centres without needing to invest directly.
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