Australia’s strong economic fundamentals, rapid digital adoption rates, and robust regulatory framework make it a prime destination for hyperscale and colocation investment, according to the latest report from global property specialists CBRE.
Based on CBRE’s forecasts, Australia’s live capacity is expected to increase from approximately 1.3GW in 2025 to around 1.8GW within three years. However, this still falls short of projected demand, resulting in an estimated supply gap of 0.7–1.7GW by 2028. Despite limited land availability in key regions, Australia’s secure energy grid, robust regulatory framework, and stable political environment provide investors with long-term certainty compared to other markets.
According to CBRE head of industrial & logistics, data centre research Australia, Sass Jalili, the country’s investment appeal is underpinned by yield stability, long lease terms, and strong credit covenants, which together deliver attractive risk-adjusted returns. “Investors are increasingly pursuing greenfield developments, strategic acquisitions, and build-to-suit projects, with growing interest in partnerships and joint ventures to secure power-ready sites,” she said.
Generative AI commercialisation is driving unprecedented data centre demand growth, with McKinsey projecting global demand to grow at 19%-22% CAGR from 2023 to 2030, where AI workloads will account for approximately 70% of growth and AI inference will represent around 60% of demand by 2030.
This demand is being fuelled by both hyperscalers and rapidly expanding “NeoCloud” companies like OpenAI, Anthropic, and CoreWeave, who lease large 10-50MW colocation blocks at short notice, positioning Sydney and Melbourne as crucial low-latency hubs for AI inference workloads.
Australia is well-positioned to capture this growth as one of Asia Pacific’s most advanced data centre markets, with CBRE analysis indicating the country will secure approximately 2.5-3.5GW of the 45-55GW new demand expected across Asia Pacific by 2028, representing 5-6% of APAC demand and 2-3% globally, with Sydney and Melbourne maintaining dominance while Brisbane, Perth and Canberra emerge as secondary growth nodes.
Attractive pricing
Despite rising debt costs, Australian data centre yields have remained stable, making them one of the most defensive real estate asset classes due to resilient cash flows and long lease tenures driven by AI adoption and cloud migration. CBRE expects increased market liquidity over the next 12 months as more assets come to market, enabling better benchmarking against global Tier 1 markets and reinforcing Australia’s attractiveness to institutional investors.
Direct investment into Australian data centres accelerated sharply in 2024 and continued into 2025, with major transactions including Blackstone and CPPIB’s ~A$24 billion acquisition of AirTrunk (the largest global data centre M&A deal of 2024), HMC Capital’s acquisition of iSeek for ~A$400 million, and the sale of a minority CDC Data Centres stake for approximately A$1.65 billion in early 2025.
With limited acquisition opportunities in key hubs, global investors are increasingly forming joint ventures with local players to secure power-ready sites, while the investable universe is forecast to expand significantly through the remainder of the decade, requiring syndicated capital structures that will attract a broader pool of institutional investors to the sector.
A$30 bn market
CBRE estimates the current Australian investable universe for data centres totals c. A$30 billion. Taking into consideration a portion of the pipeline of committed projects, it forecasts the investable universe to grow by around 50% the next four year to total c. A$46 billion. This growth is mirrored by Australia’s live IT capacity trend, which has risen steeply in recent years as hyperscale, and Al demand accelerate.
While Sydney remains Australia’s primary hub, Melbourne’s share is forecast to rise from 30% to 33% by 2029, reflecting its emergence as a strategic hyperscale location. For investors, this growth offers both diversification away from Sydney’s power and land constraints and exposure to a rapidly expanding, high specification development pipeline, say the authors.
Australia could be third largest globally
The authors said that within Asia-Pacific, Sydney is classified as a Tier 1 data centre market alongside Tokyo, Hong Kong SAR, and Singapore, currently holding approximately 60% of Australia’s built-out capacity, while Melbourne operates as an emerging Tier 2 market with just under half of Sydney’s capacity but is projected to grow at the fastest rate due to greater land availability and competitive pricing.
Australia currently ranks within the global top 10 for live built-out capacity and could potentially rise to 3rd place worldwide when factoring in projects under construction, committed, or in early planning stages.
Demand outstrips supply
CBRE explained why it thinks demand of 2.5-3.5GW, Australia will see a supply shortage of around 0.7-1.7GW by 2028. It expects newer assets to see more expansionary demand, ensuring steady growth in prices. Regional vacancy will continue to trend down but competition for capacity will be more prominent in developed economies, such as Australia, where there is stronger demand from corporates seeking to upgrade from aged data centres.
While Sydney has the larger supply pipeline, Melbourne is attracting growing interest due to relatively greater land supply, making it a rising hub for hyperscale and large-scale data centre projects.
Australia’s data centre supply pipeline is heavily pre-committed due to AI demand and cloud adoption, with vacancy dropping to just 12% and average leasing time falling sharply from 40 months in 2020 to 13 months in 2024.
These supply pressures, combined with longer construction lead times from material shortages, are driving upward pressure on colocation rental rates while lease commitments are increasing in size as hyperscalers and enterprises secure larger, long-term capacity blocks, exemplified by Goodman’s A$4 billion capital raise targeting fully fitted facilities including a 90MW Sydney project and 35MW Melbourne facility where tenants pay premiums for ready-to-use, high-performance space.
Some challenges ahead
The report confirms access to power has become the primary bottleneck for Australian data centre development, with grid capacity constraints in Sydney and Melbourne driving operators to explore secondary locations like Brisbane and Perth, while AEMO reported a surge in 2025 power applications ranging from 100MW to 600MW with some projects targeting grid connection within two years.
Construction costs remain among the highest in Asia Pacific, with Sydney and Melbourne ranked just below Tokyo and Singapore globally due to rising steel and electrical equipment prices, prolonged supply chain delays, and labour shortages extending lead times for key equipment like generators and transformers, while suitable development sites are tightening due to competing land uses and zoning restrictions.
In addition, growing community opposition in urban infill locations over power usage, noise, and environmental impact has prompted stricter planning reviews, leading operators to invest in sustainability measures including renewable PPAs and water recycling systems, while the NSW Government launched the Investment Delivery Authority to fast-track approvals for A$1 billion+ tech and data centre projects, and operators increasingly turn to prefabricated modular solutions to reduce construction timelines and risk.
While the report is focused on helping investors to find opportunities across direct acquisition, development partnerships, and platform investment, the state by state breakdown provides a detailed picture of Australian demand for anyone in the industry: from Sydney shifting to mega-campuses in the West and dealing with long grid connection lead times to Melbourne’s supply pipeline capacity reaching circa 536MW by end-2028.
You can read CBRE’s full report here.