How the AI surge is fuelling Australia’s data centre investment boom

This success boils down to institutional investment amid a perfect storm of widespread AI use paired with corporate upgrades from legacy facilities and hyperscale cloud growth, according to CBRE’s Why Australia for Data Centres report.

Hyperscale cloud growth is the speedy expansion of cloud computing infrastructure by the likes of Apple, Google and Meta, which run massive global networks of data centres.

Australian data centre firm AirTrunk, a major hyperscale data centre provider in the Asia-Pacific region, operates several significant sites, including SYD1, SYD2 and SYD3 in Sydney, and MEL1 in Melbourne. The company, founded by Robin Khuda, was acquired by Blackstone and CPP Investments in a $24 billion deal last September. 

Meanwhile, alongside hyperscalers, the report details the arrival of “neocloud” customers, whose data centre acquisition looks a little different.  

Neocloud companies are AI-focused and digital-first businesses, such as OpenAI and Zoom, that grow quickly and prefer to rent large amounts of space in shared data centres instead of building their own massive facilities. 

This movement has kicked off demand for “colocation”, also known as colo AI. It’s the fastest-growing new demand segment, driving record take-up of 53 per cent in Australia last year, compared with just 18 per cent in 2021. Australian data centre provider NextDC has a national network of colocation centres, including seven in Sydney, four in Melbourne, and two in both Brisbane and Perth.

CBRE says data centre investment is now considered a core component of institutional real estate strategies, far from its days as a niche infrastructure asset.

Investors enjoy yield stability, long-lease terms and strong tenant covenants.

They increasingly pursue greenfield developments, strategic acquisitions, and build-to-suit projects, with growing interest in partnerships and joint ventures to secure power-ready sites, according to the report.

Sass Jalili, CBRE’s head of industrial & logistics and data centre research Australia, says Sydney and Melbourne are now considered core hubs within the Asia-Pacific network, attracting both domestic and offshore capital attracted to risk-adjusted returns.

“Australia’s data centre sector has undergone significant transformation in recent years, evolving from what was once considered a niche infrastructure play to a highly sought-after real estate asset at the forefront of tech innovation,” Jalili says.

“Australia combines rising AI-driven demand, resilient pricing, and a globally competitive cost base, making it one of the most attractive markets for data centre investment.” 

When tech giants decide where to build a data centre, they weigh costs, access to power and water, regulatory conditions, local talent,  tariffs and geopolitics.

Another reason behind Australia’s success is the secure energy grid, robust regulatory framework and stable political environment, the report found. 

However, the sector is not without its significant challenges – including limited site availability, access to enough power, and high construction costs. The nation is also set to struggle to keep up with demand, with a shortfall predicted by 2028.

The 2025 data centre capacity sits at 1.4 gigawatts, likely reaching 1.8 gigawatts by 2028, but demand is expected to outpace supply, leaving a gap of 0.7 to 1.7 gigawatts, CBRE found.

Darcy Frawley, director of CBRE’s Pacific data centres capital markets, says capital from major investors has strengthened Australia’s strong global positioning in recent years.

“Institutional capital inflows are accelerating and investor confidence in Australia’s data centre sector is expected to continue to strengthen over the remainder of the decade,” he says.

However, Frawley adds that vacancy levels of just 12 per cent are already creating rental pressure.

“Low vacancy rates and solid underlying market fundamentals – underpinned by AI and cloud growth – are set to provide a strong platform for investors to scale within the Australian market,” he says.

Frawley says Australia’s data centre supply pipeline is heavily pre-committed.

“These supply pressures, combined with longer lead times due to material shortages, are expected to continue to place upward pressure on colo rental rates,” he says.

“At the same time, the size of individual lease commitments is increasing, as hyperscalers and enterprises secure larger, longer-term blocks of capacity in anticipation of future demand.”

Meanwhile, Atlassian co-founder Scott Farquhar sees Australia hosting data centres for the entire South-East Asian region and potentially beyond, powered by renewable energy.

During a recent National Press Club speech, he described the building of data centres in the nation as cost-competitive and called for the government’s backing to enable the rapid construction of more centres.