AI, renewables and seniors housing to reshape Australia’s commercial property market

AI boom accelerates demand for data centres and industrial land

The report predicts investment in data centres and chip technologies will continue to grow. 

“Data centre construction will also increase competition for capital and resources and add to demands for skills, increasing the importance of addressing capacity constraints across the economy,” it says. 

One of the biggest constraints is the lack of serviceable, development-ready industrial land across Australia, which is not keeping pace with demand from e-commerce and advanced manufacturing businesses. Industrial development-ready land is set to run out in 3.2 years, according to Cushman and Wakefield’s Industrial Land Shift report for the September quarter this year.

The lack of available land, combined with the increasing use of AI powered by data centres, will shape the future of warehouses, says Vanessa Rader, head of research at Ray White Group.

“Better racking, automation and storage will see these facilities working 24 hours and with improved efficiencies, particularly [given] the reduction of industrial land availability around the country,” she says. 

“Data centres will be a competing force for industrial land. Our continued use of AI and connected devices in homes and businesses will see growing need for storage. 

“This technology will improve, and space requirements will evolve, but data, power and water will be influencing factors, and these will not go away.”

Geopolitical upheaval positions Australia well

Increased conflict, as seen most of this year between the US and Iran, and competition between countries has intensified geopolitical fragmentation. The upside of this is Australia is well placed to benefit in a more uncertain world, according to the report .

Australia’s stable institutions, skilled workforce, deep pools of capital and reputation as a reliable trading partner will be a valuable asset into the future.

Australia’s strong standing amid unpredictable geopolitics bodes well for the industrial sector, said Joanne Henderson, national director, research at Colliers.

“Australia’s growing appeal as a trusted global trading partner will strengthen industrial demand by increasing the volume and diversity of goods moving through the country,” she says.

“Expanding trade links, particularly across the Asia-Pacific, will generate greater requirements for warehousing and distribution facilities. The benefit will be most pronounced around ports and major freight corridors, where well-located industrial land is already constrained.

“Australia’s stable and transparent investment environment should also attract further offshore capital into the sector, reinforcing demand for high-quality logistics assets.”

Energy transition unlocks new opportunities

The Intergenerational Report predicts the transition away from fossil fuels and towards renewable sources will be more important and urgent in the next 40 years.

It outlines increased competitiveness in energy-intensive industries such as data centres, and opportunities to export renewable energy products such as green aluminium and critical minerals. It does not include nuclear power in its long-term outlook. 

Decarbonising is already underway in Australia’s office market. JLL figures show all-electric buildings make up about 3.2 per cent of Sydney’s CBD office stock and are projected to reach 7 per cent in Melbourne and 15 per cent in Sydney by 2027.

Based on the findings of the Intergenerational Report, this electrification will continue at a faster rate and expand across other sectors of the commercial market.

“We have seen a shift to electrification for many buildings and owners who have strong ESG principles and investment mandates, particularly all institutional investment and offshore buyer groups across all commercial property types,” Rader says.

“We are seeing construction methods like solar facades as a possibility for many uses like industrial, data centres, greater battery facilities and we are seeing shopping centres with large rooflines utilising this for solar and battery storage.”

Seniors housing demand rises as Australia’s population ages

Dwindling birth rates and an aging population are forecast to move Australia towards a more services-focused future. According to the Intergenerational Report, deaths will outnumber births by the 2060s.

Increased demand for care and support services will emerge, prompting more commercial real estate opportunities to supply adequate senior housing stock.

Rader says there has already been a lift in interest from international developers.

“Currently there’s an uptick in offshore buyer groups, particularly Singapore and South Korea, who see the living sectors, including seniors, as a growing need in Australia,” she says.

Australia’s inevitable shift to a care economy will coincide with rising household incomes, making the services sector account for a larger share of the economy.