Data centre operators have been active in the land market with several major sales recorded over the past two years. Colliers Industrial & Logistics experts have been leading the charge in this space, assisting multiple occupiers and purchasers.

Their expertise has been reflected in selling major sites to data centre investors, having transacted close to $470 million over the past two years.

The strategy and investment in this space has ensured that they are at the forefront of the emerging sector and keeping up with the newly increased demand. The Industrial & Logistics team have ensured they are aware of the trends, have a strong understanding of the data centre space and are across various requirements needed to assist valued clients in finding the best solutions.  

With unmatched and real-time transactional relationships with the major data centre investors Colliers experts work closely with them to maximise the potential of the sector within Australia.

The teams land market expertise and ability to engage immediately with the data centre market provides a unique point of difference when divesting strategic land holdings.

The current resilience of the Australian property market, in particular the data centre sector, is a key focus for institutional investors and Colliers are working closely to further assist in this space. 

Explore the potential of the data centre sector with Colliers today.     

Data centre operation is a capital-intensive and volume-based business traditionally focused on specific purposes, primarily revolving around cloud storage, hosting, and data processing.

Before the pandemic, NBN and telecom services served as the primary drivers behind cloud hosting and data processing.

The demand for various online storage, hosting, and data processing services has surged significantly driven by the remote work measures put in place due to the pandemic, resulting in heightened streaming traffic, shared files, and online shopping.

The emergence of the new generation of Artificial Intelligence (AI) is prompting the need for new types of data centres. Robust machine learning models, cloud computing, quantum computing, and novel forms of digital services all require advanced internet and computing infrastructure.

From 2023 to the present, we have witnessed the rapid evolution of large language models like ChatGPT and the widespread adoption of Artificial Intelligence Generated Content (AIGC) models. As a recent example, Sora, a diffusion transformer model, can aid in video content production.

Globally, the growing demand for high-quality development in the data economy is transforming data centres from mere storage and processing facilities into integrated services that incorporate numerical and intelligent capabilities.

Market expectations for future growth in this sector are also strong, as evidenced by the outperformance in the US stock market for both data centre equipment Original Equipment Manufacturers (OEMs) and data solution providers over the past 12 months.

Australia Focus

Australia is currently in the early stages of this data centre transformation, with a limited number of computing data centres available.

However, major industry players are already committing to this sector. For example, Microsoft announced a $5 billion commitment to build nine new generation data centres in Australia, with the goal of powering cloud computing and enhancing cybersecurity for local businesses, accounting for 37% of their $13.5 billion data centre investment worldwide.

This significant investment underscores the growing importance of data centres in supporting the digital infrastructure of the future, underpinned by robust demand and growth.

Total revenue for Australia's data centre industry is expected to increase by 9.5% in FY2024, and this growth rate is expected to remain high, averaging at 7.5%, for the next five years, driven by the completion of the new generation of data centres.

The average annualised revenue per establishment reached $2.1 million in 2023 and is expected to increase to $2.8 million by 2029, with a future five-year CAGR exceeding 5.8%.

Due to the nature of volume-based services, the demand for data centres is underpinned by the total population and business demand.

The total NSW population stood at 8.4 million people as at September 2023, accounting for 31% of the total Australian population.

Additionally, the substantial presence of ICT companies, finance and insurance firms, and telecom companies in Sydney has positioned NSW with the highest proportion of current data centre establishments in Australia at 41%. 

While we anticipate further growth in data centres for Sydney and Melbourne, Brisbane is currently lagging behind and holding great potential for future expansion.

 The growth will be driven by factors such as the high population growth projection associated with the 2032 Olympics, ongoing city revitalisation efforts to improve infrastructure, the Smart and Connected Brisbane strategy, and the vision to establish a technology and innovation hub.

Additionally, government demands for secure storage and cybersecurity will create more demand in Canberra.
 

Site Location

- Large-scale, next-generation data centres are likely to be situated in metro areas, where land values are lower compared to city fringe markets. Future hyperscale data storage facilities will extend even further into regional areas. Driven by the recent iteration of the AI services, major operators are focusing on 10-12.5 hectares greenfield sites with the potential to upgrade internet and power access for the development of large-scale Data Centre Campuses. 

- Proximity to businesses or end-users is crucial for delivering low-latency co-location services. Macquarie Park serves as a good example due to its suitable Floor Space Ratio (FSR), access to power, and higher residential and business catchments.

- Access to renewable resources such as solar, wind, and water will help take the edge off cooling costs and reduce energy consumption for the data centre, thereby enhancing Environmental, Social, and Governance (ESG) credentials. However, site selection should also consider avoiding natural disasters to ensure both energy efficiency and service continuity.

Investment Market

The US, UK, and European countries are currently leading in the development of data centres and are holding a significant amount of tradeable assets.

As a result, the long-term global data centre sales volume leans more towards the EMEA (56%) and the Americas (31%) for the long-term average. APAC accounts for only 13% of the total data centre investment activity.

Within the APAC region, China boasts the highest proportion of tradable assets, representing 37% of historical transaction activities, followed by Australia (18%) and Japan (15%) om 2023.

Anticipating the increasing demand due to the scarcity of modern data centres, we expect more global data centre operators to enter the market through development strategies. 

NextDC has announced the acquisition of a data centre in Artarmon, Sydney, valued at $180 million. This strategic investment underscores NextDC's commitment to meeting the escalating demand in the market.

The newly acquired facility boasts a power capacity of up to 13.5MW and is specifically tailored for AI Factories and sovereign AI initiatives.

This move signals an early response to the growing demand in the sector. Given this trend, we anticipate active acquisition for next 24 months as major industry players seek to expand their development and operational assets, thereby consolidating their market presence and scaling operations.

*All figures are approximate.