Australian data centre market facing supply constraints

Real estate services and investment company CBRE has warned that Australia could face a shortage of available data centre capacity due in part to increasing construction times for new facilities in the nation.

The company’s Q1 Asia Pacific Data Centre Trends report found that new Australian data centre supply is almost fully contracted due to the surge in demand driven by rapid AI and cloud adoption.

Demand is also being driven by the growing trend of Australian corporates moving away from in-house IT models towards third-party co-location approaches, the report notes. But CBRE Pacific Director for Data Centres Darcy Frawley noted that supply is being constrained due in part to supply chain issues.

“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,” he said.

Another key issue in the availability of suitable land across the key Sydney and Melbourne metros, forcing the industry to explore new ownership models.

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

Another key trend impacting the market is power supply, with the adoption of renewable energy lagging the sector’s 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,” 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.”

The shortages could have a knock-on effect for co-location rental pricing, Frawley warned.

“While domestic investment activity was limited in 2023 due to the supply shortages, Australian super funds have been investing in data centre operations in Europe and elsewhere due to the data centre asset class remaining in high demand,” Frawley concluded.

Notable recent investments have been AustralianSuper’s acquisition of a minority stake in Vantage EMEA for $2.5 billion and Aware Super’s $746 million investment in US-based operator Switch.

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