Data centres have made the leap from being niche infrastructure to a driver of industrial land absorption. Industrial land is already structurally constrained in many Australian core precincts, and the arrival of data centres as a competing land user is creating an interesting paradigm, further tightening the land-and-build equation.
While they may not fit in with all investor strategies, they are a key driver to watch as they continue to sway the market.
The data centre demand story is real and it’s accelerating
Data centre demand is being driven by a mix of cloud adoption, data sovereignty, and increasing AI workloads, which require more computing density and power availability. Colliers’ analysis (based on DC Byte data) points to a striking long-run expansion where Australian data centre occupancy has grown from 37MW (2005) to 1,315MW (2025), with 67 per cent of that growth occurring in the past five years1.
Colliers further report that there is a national pipeline of 8,181MW in committed and early-stage development further accelerating growth, albeit there are constraints to the deliverability of this pipeline.
Power and capital make data centres a specialist asset class (and a specialist constraint)
While there is no doubt that the data centre sector growth is real, its specialist nature is a constraint. There are significant barriers, including power and water infrastructure constraints, long construction lead times, and regulatory hurdles to build data centres.
Power availability and connection timelines are perhaps the most considerable constraint as data centres require considerable, reliable power which is a key selection driver. The importance of grid connection and system security is also becoming more formalised.
This requirement is also paired with that fact that land is more readily available to build data centres in areas further from the cities, but the further you move away from a central hub, the less reliable power and connection tends to be.
The Australian Energy Market Commission (AEMC) has released a draft rule proposing new technical standards for large data centres and similar facilities connecting to the National Electricity Market, aiming to mitigate grid stability risks from large inverter-based loads2. This is a reminder that data centres are no longer “passive occupiers”, they are increasingly treated as active grid participants, and the regulatory environment is evolving accordingly.
From an investor’s viewpoint, all of this matters because the required specification may also change over time. Data centres require a huge capital outlay and while developments may be profitable today, what happens in the life cycle as technology improves; cooling technology evolves; power usage becomes more efficient; or AI itself drives a fundamentally different solution to storing data?
For a relatively standard specification warehouse, it lends itself to be suitable for a variety of occupiers; logistics, manufacturing, storage etc and across a huge variety of business sectors. The investment of a traditional warehouse is underpinned by a diverse occupier base. Conversely, if a data centre becomes redundant there is currently little alternative use, and if there is an alternative user, would they pay the premium to cover the return on the capital outlaid?
From a Westbridge perspective, while data centres could be an attractive investment initially, the certainty of a tenant in future years, or requirements for significant further investment due to technology changes, places too much reliance on future events.
Our principles in property investing remain in assets that appeal to a wide variety of occupiers increasing options for future leasing strategies, underpinning occupancy and minimising void periods – ultimately protecting the investment value.
Data centres are taking industrial land—and land is already in short supply
Here is where data centres intersect directly with traditional industrial investing – by 2030, data centres are expected to take up around 500 hectares of land, equating to around a 14 per cent boost to national industrial demand, which will intensify competition for sites and displace smaller users3.
This “land take-up” effect comes at the same time as traditional drivers remain strong such as population growth, the need for local logistics, and continued preference for modern, efficient facilities.
Colliers reported two consecutive years where demand outpaced new supply in the industrial sector, and a rapid tightening of vacancy in key markets like Melbourne, for example, which has cited a five per cent vacancy rate.1
One of the emerging themes CBRE4 has noted for 2026 has been the decline in super-prime availability relative to older stock, because the operational efficiency (height clearance, utilisation, pallet density) is increasingly critical for logistics operators.
So even if data centres aren’t in our target investment set, given their specialist nature, their presence still matters to industrial investors because they are competing for the same scarce industrial land envelope.
The build-cost reality: economic rents often struggle to justify new industrial builds
What we find notable is not just the growth, it’s the recent shift in market balance.
Even outside data centres, build costs and feasibility constraints are a key reason we continue to favour well-located, existing industrial stock. Construction costs have been rising and are acting as a constraint on development, further reinforcing relative value in existing assets.
The same theme appears in broader market research. CBRE’s vacancy reporting notes that, in the long run, Australia’s supply of serviced, zoned industrial land is expected to remain structurally constrained, limiting the development pipeline. When replacement cost rises and serviced land becomes scarcer, the hurdle rate for new supply increases. Practically, this can mean economic rents for brand-new builds are hard to “stack up” unless a tenant is highly motivated, the facility is super-prime, and/or the location is exceptionally scarce.
Why we continue to invest in industrial
Despite a period of elevated supply delivery in some east coast markets, the national picture remains supportive. Colliers’ national snapshot for Q4 2025 states that national take up closed the year at circa 3.5million sqm (above the 10?year average), while vacancy edged up to around four per cent, which they framed as likely peaking before tightening.
On the supply side, Colliers reports Q4 2025 deliveries of about 750,000 sqm, and notes that pre-commitment was around 75 per cent nationally for the quarter, led by Adelaide (100 per cent) and Perth (84 per cent), a strong signal that delivered stock is still being largely spoken for.
Separately, CBRE reports national industrial and logistics vacancy reached 3.2 per cent in the second half of 2025 and expects vacancy to peak in the second half of 2026 but still remain below the market’s approximate four per cent “equilibrium” threshold – suggesting conditions remain broadly landlord-favourable at a national level.
Putting it all together: data centre land absorption + persistent logistics demand + high build costs + constrained serviced land is exactly the combination that keeps Westbridge positive on the industrial market. In our view, these forces continue to support tenant competition for existing, well-located stock, particularly where modern functionality can be delivered without paying today’s full replacement cost.
References
