Demanding, and in-demand: advancing the data centre asset class

Data centres have become a star-performing property asset class, offering attractive returns for investors. Data centres power the technology that defines modern life, from work and banking to social media scrolling and Netflix streaming. With this expanding digital economy and exponential growth of artificial intelligence (AI), this asset class is tipped to power on with Australia's market for data centres alone expected to nearly double to $40 billion by 2028. This has triggered a globally competitive 'arms race' among data centre providers and developers to secure sites, water and power.

“Within just a few years, data centres have emerged as a core investment sector spanning a global scale, poised to have transformative impact on national economies, cities and communities in the next decade,” says Jonathan Denis-Jacob, Director at Cistri.

While the pivotal role of data centres in powering smart precincts of the future is clear, their development is complex and challenging – particularly regarding power consumption and water supply. Addressing these challenges is required to integrate data centres into smart precincts.

The opportunity and challenge for data centre construction

Goldman Sachs estimates that international data centre power demand is projected to grow by a remarkable 165 per cent by 2030, rising from 411 terawatt hours (TWh) in 2023, driven by the exponential growth of AI. For instance, an average ChatGPT query requires 10 times the power load of a Google search. 

Globally, data centres are projected to consume up to four percent of power generated by 2030, a significant increase from today’s 1-2 per cent. But the opportunity lies in the transition to sustainable and integrated solutions for data centre construction. Operators are increasingly securing renewable power supplies to meet part of their substantial energy needs. However, green energy supplies and battery technology are not anywhere near the minimum scale required to supply adequate power. In a land abundant with natural resources, it seems obvious we should be able to find solutions that utilise renewable energy. 

With the operators’ need to be close to population centres, there is a push for innovative design and integration of data centres into urban environments. This need to integrate must be balanced with the need for security. Despite generating relatively limited direct employment, data centres need to be recognised as critical economic infrastructure that attracts investment, stimulates economic activity in surrounding areas, and employs a high-tech workforce, thus contributing substantial value to the economy. These broader economic benefits are crucial to recognise in the puzzle of creating a sustainable and successful mixed-use precinct.

The NSW Government recently introduced the Investment Delivery Authority to streamline approvals for large projects, including data centre construction, recognising their "first-of-a-kind scale challenges" and "nation-building" significance. 

But the scarcity of appropriate and available land in major cities is driving up land values and complicating strategic site selection. Data centres require large plots of land with specific zoning designations and utilities access. Their land size requirements have grown significantly, pressuring constrained industrial land supply. 

In NSW, most data centres trigger State Significant Development due to their MegaWatt capacity, leading to increased government interest in design outcomes and potentially lengthening approval timeframes due to strict design requirements influenced by operators. In Victoria, they can be considered via the State Development Facilitation Program under the voluntary Significant Economic Development Pathway. 

Local councils often face challenges in balancing data centre needs with community expectations and public domain considerations, as these are highly secure facilities with limited public access. Therefore, advocating to local authorities and communities about the economic benefits and critical role of data centres is essential for facilitating support and approvals. Noise and air quality, particularly from backup generators during maintenance testing scenarios, also remain key criteria under scrutiny from agencies.

Where to from here?

The strategic siting of data centres is not just about finding available land; it’s about integrating these facilities into smart precincts. Effective site selection ensures that data centres can support the digital infrastructure needs of precincts, fostering economic growth, enhancing connectivity and promoting sustainability. By strategically planning the location and design of data centres, we can create precincts that are technologically advanced, vibrant and resilient.

The growth of the requirement for data centres is and will be a major use of our cities and regions resources. Effective and strategic siting of these facilities through holistic land acquisition that considers power, water and land-use requirements, and uses the renewable energy transition to their advantage, will help support their ongoing growth and integration into our cities in a sustainable manner.