Australia's data centre boom is reshaping property markets

Despite being widely reviled by the community, data centre construction in Australia is here to stay and brings with it serious implications for housing, construction, commercial and residential property markets.

A recent survey revealed that 83 per cent wouldn’t want to live near one, while just 16 per cent of Australians believe local communities near artificial intelligence (AI) data centres would see any meaningful benefit.

Regardless of public perception, the data centre boom is not going away.

Australia is now the third-largest destination globally for data centre investment, with a pipeline exceeding $155 billion.

Proponents for this rapid expansion point to the creation of up to 400,000 jobs, and the development of a national infrastructure equipped to propel the country into the AI era. 

Critics point to the job gains being relatively short-lived during the construction phase, with ramifications for land prices, the environment, water and energy resources, construction and housing supply.

A major report on data centres released Tuesday (8 August) by JLL pointed to intense land competition from the data centre expansion potentially doubling industrial warehouse economic rents in key markets by 2028, with data centre developers paying premiums for land in core metro markets.

JLL says the maturation of the sector “presents both opportunities and complexities” for Australian capital markets, with time and cost to market larger concerns than risk of oversupply.

The projections for commercial rents are off-the-charts.

JLL’s modelling shows economic rents for a standard 20,000 square metre warehouse in Sydney’s Outer Central West could increase 88 per cent above current prime rents under high-growth scenarios, while Melbourne’s West could see rents exceed current market rates by 132 per cent as land competition intensifies.

The data centre sector’s capacity pipeline has grown from 451 megawatts in 2015 to 1.2 gigawatts today, with 16.2 gigawatts now under construction or planned – representing more than 13 times current capacity. New South Wales and Victoria account for 91 per cent of this future capacity, concentrating land demand in already constrained metropolitan markets.

To put that in context in terms of impact, a single one-megawatt data centre consumes electricity equivalent to 40 shopping centres of 50,000 square metres, 360 warehouses of 20,000 square metres, or 440 office towers of 10,000 square metres.

Matthew Lee, Executive Director and Co-Head of Australian Data Centres at JLL, said it was a win, at least, for investors in the space.

“For investors, I am not concerned at all about having too many data centres in the pipeline, because demand is, and will continue to be, strong.

“If you are building a data centre now you are in a very good position,” he said.

“The greater concern is around the time it will take projects to come to market.

“There is no precedent for the scale of the data centre pipeline. By contrast, the telecommunications boom was almost a rounding error compared with what is happening today.”

Houses or data centres

This supersonic escalation makes its resounding boom at a time when Australia is already failing to build enough homes, developers and builders are struggling or folding and major projects such as the Brisbane Olympics, road and rail infrastructure and large-scale CBD rejuvenation are underway and competing for limited access to workforce needs.

The Housing Industry Association (HIA) and the National Electrical and Communications Association (NECA) has warned that Australia’s rapidly expanding data centre sector is placing unprecedented pressure on an already stretched construction workforce, “threatening housing delivery, infrastructure projects and the nation’s broader economic ambitions”.

As investment in artificial intelligence, cloud computing and digital infrastructure accelerates, demand for skilled electricians, communications technicians and specialist construction trades is rising sharply.

Although broadly supportive of the growth of Australia’s digital economy, both organisations said the workforce pipeline is not keeping pace.

HIA Managing Director Jocelyn Martin said the competition for skilled workers is becoming increasingly intense at a time when Australia is already facing a chronic shortage of construction labour.

“Australia needs more homes, more infrastructure and more digital capability. The challenge is that all these sectors are drawing from the same limited pool of skilled workers,” Ms Martin said.

“Large-scale data centre projects are attracting significant numbers of electricians and specialist trades, further exacerbating workforce shortages that are already constraining housing supply across the country.”

NECA Chief Executive Officer Stewart Joyce said the electrical contracting industry is facing unprecedented demand.

“Data centres are highly technical, energy-intensive projects that require large numbers of qualified electricians and communications professionals throughout construction, commissioning and ongoing operation,” Mr Joyce said.

“The sector’s growth presents major opportunities for our industry, but without a significant increase in training and workforce capacity, critical projects across the economy will compete for the same skilled people.”

Land values increasing

The limited availability of serviced industrial land is driving both demand nationally and value rates per square metre upwards quite markedly.

Chris Winter, Director, Herron Todd White, said Australia’s industrial and logistics sector is settling into a healthier, more predictable rhythm in mid-2026 after a few years of rental spikes and very low vacancy rates.

“Across the country, the underlying fundamentals are still solid, underpinned by steady demand for e-commerce, third-party logistics and data centres, even as businesses and occupiers navigate broader economic challenges.”

According to the JLL Australian Data Centre Growth and the Impacts on the Industrial Sector report, after a period of stabilisation in Australian industrial land values over 2023 and 2024, demand for large land lots (2-5 Ha) is increasing.

However, traditional industrial developers have not been the catalyst for this renewed growth.

“Data centre operators are increasingly active in the market and are having an impact. Over the past 12 months to Q2 2026, average land values for 2-5 hectare lots in Sydney’s Outer Central West (9.6 per cent y-o-y), Melbourne’s West (16.5 per cent y-o-y) have increased significantly,” the report noted.

The result is all the more pertinent when compared to smaller lot sizes. Growth in average land values for smaller land lots has been subdued.

In Sydney’s Outer Central West, growth in average 1- Ha land values have increased modestly (2.5 per cent y-o-y). Over the same time period in Melbourne’s West precinct, average land values for 2,000 sqm land lots increased 0.8 per cent y-o-y and values for one hectare land lots increased 4.4 per cent y-o-y.

Water, energy and environment

AI data centres are certainly hot property but it’s their heat generation that fuels much of the concern around their long-term viability and impact on energy prices and the environment.

Traditional data centres use approximately 50 per cent of total energy for cooling to maintain optimal temperatures.

Data centre electricity demand is forecast to grow 25 per cent p.a. to 2030, increasing pressure on the electricity grid. Around 64 per cent of Australia’s electricity is still fossil fuel-generated, creating challenges for sustainable data centre growth.

New research from Airteam, conducted by Primara Research across a nationally representative sample of 1,000 Australians, shows growing community pushback against AI data centre developments.

On the environmental side, four in five (80 per cent) are concerned about noise and air pollution, with 78 per cent worried about the use of scarce water resources.

Underlying both is a trust problem. More than half of Australians (52 per cent) don’t trust big tech companies to be honest about their data centre water and power use. Whatever commitments operators make to communities, most Australians don’t believe they’ll be honoured.

This aversion could come with flow-on effects to residential property markets.

Rich Atkinson, Executive Director of Airteam, said resistance to living near an AI data centre is consistent across all generations, but the spread of nearly 18 percentage points shows that younger Australians, under greater housing affordability pressure and more likely to see themselves working in the tech sector, are meaningfully more open to the idea.

Boomers led at 92.6 per cent, followed by Gen X (84.2 per cent), Gen Z (81.5 per cent) and Millennials (75.0 per cent).

“New infrastructure that reshapes communities needs to demonstrate its value to the people living in them,” Mr Atkinson said.

“Eighty-four percent of Australians don’t believe their local community will see a meaningful benefit from AI data centres.

“It’s a reasonable expectation that growth should work for the people it’s built among, not just for shareholders overseas.”

Australians will need to get used to them, one way or another.

Speaking at an AI conference in Sydney on Monday (7 September), Oxford Economics Head of Economics, Harry Murphy Cruise, said the nation was at the “cusp of a data centre boom”.

“We expect AI adoption in Australia to increase, jumping to around 50 per cent over the next decade and then topping out at around 80 per cent by 2025,” Mr Murphy Cruise said.

Australia’s investment in data centres to power AI was expected to reach $60 billion by 2030, from $20 billion in 2026, according to Oxford Economics.

Oxford Economics has looked at occupations in Australia and crunched the likely outcomes for job automation by AI.

The hardest hit are graphic design, web design and illustration, followed by data entry and other keyboard-type jobs and telemarketing.

“AI does that particularly well,” Mr Murphy Cruise said.

Occupations such as concreters and surgeons, and even electricians, are less exposed.

“AI, at least at the moment, isn’t going to be doing your heart surgery,” Mr Murphy Cruise said.