Data centres might be the next big alternative asset class


Data centres have quickly become an in-demand asset class, driven by rising population and tight supply.

According to Ray White, Australia is now the seventh most populous country for data centres, with more than $13.6 billion in investment to build more.

In the past year alone, more than 150,000sq m of space has been added.

Ray White Group Head of Research, Vanessa Rader, said the assets are closely held.

“In the past 10 years, transactions have been limited, reaching a peak of $3 billion in 2020, with an average investment of approximately $1.2 billion per year,” Ms Rader said.

“During the first five months of 2024, a range of offerings have been transacted, amounting to $414.5 million.”

She said, historically, the majority of investment activity had been concentrated in the NSW, primarily in metropolitan areas, followed by Melbourne. 

“Despite Queensland’s strong population growth, there have been limited transactions for data centres in this location, with existing assets being tightly held,” she said.

“On the other hand, opportunities in the ACT, South Australia, and Western Australia have all made significant progress in terms of transaction volume.”

She said data centres had proven to be an attractive investment opportunity for larger institutional and offshore investment groups, with the average investment size over the past 10 years sitting at $94.5 million, unlike many other alternative asset classes. 

“Historically, foreign investors have been the primary investor type, with the United States and Canada being the major buyers,” she said.

“However, prior to the pandemic, China, Singapore, and New Zealand groups also featured in the market. 

“Although sales volumes have been limited in the last 18 months, there has been a shift in the seller profile, with some offshore groups divesting their assets and local groups now becoming the dominant buyer category. 

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Ms Rader said foreign funds continued to be the major player in the development of new data centre space. 

“With more than 140,000sq m currently under construction, approximately 80 per cent is represented by offshore capital, including Microsoft’s Penrith facility, which is set to be completed in early 2025,” she said.

Ms Rader said before the pandemic, yields for data centre assets ranged from 7 to 9.5 per cent. 

“However, during the period of low interest rates, yields compressed to as low as 4.3 per cent,” she said.

“Recent sales have seen yields rumoured to be as low as 3.6 per cent and as high as the upper 6 per cent range, varying based on factors such as size, location, and functionality.”

Ms Rader said the country’s demand for data is expected to rise, fuelling demand.

“Consequently, data centres will attract greater attention as an investment class,” she said.

“While foreign investors have been active in this asset class for some time, Australia is emerging as one of the key global locations for new facilities, following countries like the United States, Germany, United Kingdom, and China. 

“The growing demand from the listed sector is expected to put pressure on yields and drive the development of new supply.”



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