Global commercial real estate company Cushman & Wakefield recently reported in its H2 2024 Asia Pacific Data Centre Market Update [1] that around USD 116 billion will be needed to build out the existing colocation data centre pipeline across the region in the coming five to seven years as demand for the sector grows. Of this, the Australian market – which is one of five Asian markets that account for over 80% of the 12.45 GW in the pipeline – will see USD 15.51 billion invested to build out its pipeline.
W.Media spoke to report author, the head of research and insights, data centre group, Asia Pacific Pritesh Swamy and director, alternatives capital markets, Australia Alex Moffatt to understand what is shaping the current market, plus where is it heading.
W.Media: Vacancy rates have dropped in Sydney to 9% and capacity has increased but not by as much. What are the key demand trends you are seeing developing in the past months and how will the shape in the coming months?
Cushman & Wakefield: We are continuing to see leasing demand from western hyperscalers as their compute requirement is in excess of their self-build programs. This is forecast to continue in the Sydney market until 2028 based on current build programs. Sydney has been one of the markets in APAC to record significant land acquisition in 2024 by data centre operators in addition to 986MW in the development pipeline, under construction and planned combined, there is another 2.4GW in the land bank stage. This highlights that operators are gearing up for the anticipated demand from AI/ML and cloud workloads.
W.Media: Microsoft tends to do BTS data centres and yet the likes of CDC are still building a 500MW mega campus. Do you see cloud/colo still dominating and are the hyperscalers tilting more towards building their own facilities?
Cushman & Wakefield: Given the scale of compute required for AI/ML in addition to ongoing cloud requirements, we see hyperscale leasing continuing alongside self-build programs. In addition, most markets in APAC including Australia are still undersupplied in terms of data centre capacity. As of Q4 2024 the United States reached 20.5GW of operational capacity with 6.5GW under construction and 46GW in planned stages. This shows Australia as well as other markets in APAC are still catching up and there is significant headroom for growth.
W.Media: In your January cost construction guide, Australia saw the rate of construction inflation increase, in both cases primarily driven by strong demand from both local and international players. Only India saw the same. How does this impact the decisions data centre operators are making in terms of location and build size? Does the price rise amount in ANZ impact the build decision much?
Cushman & Wakefield: Data centre construction inflation has been caused by data centre and infrastructure building programs competing for the same materials and labour. So far, the construction cost increases have not reached a level which is restricting development. We are seeing operators review their building designs to increase electricity capacity in their data halls given the significant increases in rack density from 3kW per rack to 70kW per rack and rising. Moreover, the data centre locations are typically selected based on parameters that hold higher importance than the cost of construction such as proximity to clients, terrestrial and undersea fibre connectivity, stable and reliable power supply, skilled manpower, etc. Therefore, the price rise may not impact the build decisions in the current dynamics.
W.Media: You recently said the power tariff in Asia Pacific in November 2024 averaged 11.5 cents per kilowatt hour, resulting in an annual power cost of USD 30.2 million to run a 20 MW IT workload at a Power Usage Effectiveness (PUE) of 1.5. There is a 2.7x difference between the most and least expensive power tariffs across the region. How is power now affecting data centre build decisions? Are operators modifying their approach here or are things continuing as they are?
Cushman & Wakefield: Access to electricity capacity and infrastructure is the key deciding factor for data centre development. Markets like Melbourne and Perth are increasingly attractive given their available capacity at terminal stations and relatively cheap electricity. Perth in particular is a market where we see enquiries increasing because the renewables and gas reservation policy have generated gigawatts of cheap power. Also, power is a pass-through cost for colo operators as end-clients pay for the power they consume. Similarly, cloud service providers also have power costs built into their overall service costs. Therefore, power costs do not directly impact the build decisions.
W.Media: How much land-banking are you seeing in Australia’s capitals and what will the trend be?
Cushman & Wakefield: We are seeing data centre land holdings increase across industrial zoned land in Sydney and Melbourne. Some of this land is being banked, however development is proceeding on most of the data centre sites given the scale of demand in both cities. As mentioned earlier, Sydney has 2.4GW in land bank stage which is the highest in the Asia Pacific region. Most of this land bank has been acquired in the last couple of years.
W.Media: Melbourne is way smaller than Sydney but seems to now have a higher rate of increase in proposed capacity than Sydney. How real is this “shift to Melbourne” and what is C&W seeing happen to this over the coming months?
Cushman & Wakefield: Melbourne has cemented its place in the APAC data centre market as an established market with total planned capacity on par with Singapore and Seoul. Based on the amount of enquiry we are receiving for Melbourne; we expect to see more operators enter the Melbourne market this year. However, we would not term it as “Shift to Melbourne” because a) Sydney continues to grow and has the potential to emerge as one of the largest markets in Asia Pacific b) Most large counties have 2 to 4 cities that become key data centre clusters, like Tokyo and Osaka in Japan and Mumbai, Chennai, Hyderabad and Delhi in India. Similarly, Sydney and Melbourne are the two key cities in Australia.
W.Media: We are in early days for AI and ANZ operators are favouring hybrid models for their designs anyway. Do you see this changing [e.g., there are smaller players promising to build small AI factories in existing office space to keep AI inference local]?
Cushman & Wakefield: Some of the developers have shown interest in repurposing existing office buildings to mixed used buildings serving as Office and small capacity Data centres however, considering the emerging technical specifications for new data centres, a mixed used building may be very difficult to design while maintaining efficiency (PUE/WUE) as well as construction costs. Having said that, some office spaces may be repurposed for Edge data centres. In general, we are seeing operators designing their data centre buildings to allow for higher power densities, liquid cooling, and increased heat rejection. We expect operators to retain the ability to accommodate different workloads in their data halls.
W.Media: What do you think is going to have the biggest impact on the Sydney and Melbourne markets in the coming months?
Cushman & Wakefield: Sydney is going to continue to have issues with land availability and electricity capacity. Suitably zoned land is limited in Sydney and there are competing uses for data centres and logistics. Electricity infrastructure and capacity is limited in Sydney and exacerbated by delays in the delivery of new capacity which in places is scheduled for 2029. Melbourne is delivering new terminal stations which have supported large capacity data centres in the north and western regions. This increased capacity is enabling data centre campuses of 300MW+ in Melbourne. Also, there are 10 new subsea cables currently being built connecting Australia with Americas and Asia Pacific. Most of these cable land at Melbourne/Sydney. This will further enhance the connectivity and attract operators for their new data centre developments.
Cushman & Wakefield’s Australian head of APAC data centre capital markets and advisory, Alex Moffatt, is speaking on the W.Media Melbourne Cloud & Datacentre Convention 2025 panel session: “What do the wider community know and think of data centres and cloud? And why/how does it matter?” scheduled for 3.15pm on April 3rd.
The W.Media Melbourne Cloud & Datacentre Convention 2025: “Transforming Enterprise, Datacenters and Cloud in Victoria” – colocated with Interconnect World – returns on 3 April 2025 to CENTREPIECE at Melbourne Park. The convention takes place as the city achieves recognition as a growing leader in digital infrastructure. Equinix recently described Melbourne as the fastest growing ‘edge metro’ in the world and analysis from DCByte indicates a substantial forward programme of build which could see capacity across the metro area move over the next few years towards 1 GW.
The Convention for Melbourne in 2025 will focus on the key factors and requirements that are driving enterprise demand and which will drive growth and direction in future demand for digital infrastructure. To view the agenda, register to attend or plan your visit, please visit:
https://clouddatacenter.events/events/melbourne-convention-2025/