Data centre boom squeezes Sydney and Melbourne warehouses

The firm estimates those sites could otherwise have supported about 3.5 million square metres of warehouse floor space, based on an indicative 50 per cent site coverage ratio.

Cushman & Wakefield head of logistics and industrial research Australia, Luke Crawford, says the figure should be viewed as displaced development capacity rather than warehouses that would necessarily have been built.

“It is intended as an estimate of displaced development capacity rather than a forecast of buildings that would necessarily have been delivered immediately,” Crawford says.

“Actual warehouse yields vary depending on site configuration, planning controls, infrastructure requirements and the type of facility proposed.”

Data centres accounted for 17 per cent of national industrial land take-up in 2025, and 27 per cent of take-up across Sydney and Melbourne combined.

Competition for development-ready land

On paper, Australia has no shortage of industrial land, with Cushman & Wakefield identifying about 12,577 hectares nationally.

The problem is that only 3365 hectares are considered active, meaning they are either serviced or expected to be serviced within two years. Much of the remainder still depends on infrastructure, utilities or planning before development can begin.

That leaves warehouse developers and data centre operators competing for a much smaller pool of sites that can be developed in the near term.

When asked whether warehouse developers are increasingly being priced out, Crawford says, “In some strategic precincts, yes.

“Data centre operators often assess sites against a different economic model and can justify paying a substantial premium where land offers access to power, fibre and planning certainty.”

Cushman & Wakefield says that premium can, in some cases, exceed what an industrial developer can pay by more than 50 per cent.

Crawford adds that the pressure is concentrated rather than market-wide, with the strongest competition occurring in Sydney’s outer west and Melbourne’s west and north, where large sites, infrastructure and access to power make land attractive to both uses.

In Sydney, almost 80 per cent of active industrial land is concentrated in the outer west, where the Mamre Road Precinct remains a major source of development-ready supply.

Melbourne is seeing a similar contest. Data centres accounted for about a quarter of the city’s industrial land take-up in 2025, with activity increasingly concentrated across the west and north.

“The issue for Melbourne is that while there is a large pipeline of identified land supply, only a relatively small proportion is considered active and development-ready,” Crawford says.

“As a result, both industrial developers and data centre operators are competing for the same pool of deliverable sites.”

Lower property costs come at a price

For warehouse occupiers unable to secure sites in established industrial precincts, the alternative is to move further into outer growth areas.

That comes with its own costs, however.

“Moving further out may reduce the initial land or rental cost, but it can increase freight distances, affect access to labour and place businesses further from customers, ports or established supply-chain networks,” Crawford says.

The impact will vary depending on the type of business. Large national distribution centres may be better able to operate from outer growth areas with strong motorway access, while last-mile delivery, food distribution and other time-sensitive operations can place a much higher value on proximity to customers.

“The lowest property cost does not necessarily produce the lowest total operating cost,” Crawford says.

That trade-off is likely to become more important if data centre demand continues to absorb strategically located land.

Crawford says digital infrastructure represents a structural change in the industrial property market rather than a temporary spike, with power availability now becoming a major factor in land pricing and site selection.

“Land with scale, infrastructure certainty and a credible pathway to power is now being assessed by a broader range of buyers and against a broader range of uses,” he says.