What data centres mean for Australia and energy consumption

FEATURE: According to US based non-profit newsroom More Perfect Union, Mark Zuckerberg’s “impenetrable” 1.85 million square metre data centre in Mansfield, Georgia, has had a devastating impact on its local community. A recent video showed residents experience noise, light and waterway pollution, rising energy bills and destruction of forests and the environment.

Knight Frank’s latest Global Data Centres Report – 2025 found that data centre growth globally is projected to reach US$4 trillion ($A6.2 trillion) by 2030 with an 18 per cent compound annual growth rate.

The Asia Pacific is projected to lead investment, capturing US$15.5 billion ($24 billion) in 2024, and accounting for 70 per cent of cross-border investments.

In Australia, data centres have exploded in both energy consumption and investment value, with commercial and industrial property group Goodman last year revealing that around 50 per cent of the company’s $12.8 billion pipeline of work would soon be data centres.

• Read TFE’s extensive coverage on the challenges facing the asset class here.

According to the report, Australia was the second top location for capital investment in 2024, with $6.7 billion, behind the United States at $14.6 billion.

This was cemented by the purchase of Australia’s largest independent provider, AirTrunk, by US-based investors Blackstone and the Canada Pension Plan Investment Board last year. It was the largest data centre transaction in 2024.

The report finds that Australia has gained significant momentum following the US ruling that grants the country privileged access to Nvidia AI chips. Australia is one of the only four nations in APAC exempt from any export restrictions, putting it at a strategic advantage in the AI race.

“Real estate investors and developers are positioning themselves to capitalise on this demand, with an emphasis on acquiring strategically located land and securing long-term power agreements,” Stephen Beard, Knight Frank’s global head of data centres, said.

Sydney and Melbourne are both growing their data centre footprint

And while Sydney traditionally captures the majority of the market, the report projects that Melbourne is rising as a key data centre hub due to power and land availability becoming increasingly scarce in Sydney.

Victoria is also taking a more proactive approach to approving data centre development applications versus New South Wales, the report said.

Hyperscalers are what exactly?

Big in the market are hyperscalers; companies such as Amazon Web Services, that can rapidly scale infrastructure needed to store data. Colocation is where companies lease space within a data centre to house their servers and IT equipment.

According to the report, Melbourne will be hot for the development of high-performance computing infrastructure thanks to its rapidly growing population living in high-density housing.

Growing opportunities for more sustainable data centres

According to Knight Frank’s head of data centres in the APAC, Fred Fitzalan-Howard, the Facebook story in Georgia does not have to be that way.

In Australia, the future is pointing to ultra-dense liquid-cooled, AI-ready data centres powered increasingly by renewables. And he says Melbourne is leading this transformation.

According to the report, Australia was the second top location for capital investment in 2024, with $6.7 billion, behind the United States at $14.6 billion.

There’s also a move toward district-scale data precincts with integrated energy and resource sharing solutions that could define the next decade.

Investors are the driving force behind data centres attempting to become more sustainable, Fitzalan-Howard said, and they have been increasingly prioritising sustainability and cost-efficiency in data centre operations.

This includes

• renewable energy integration – combining renewable energy with digital infrastructure. A recent IMF Investors report indicates that 80 per cent of surveyed investors plan to increase equity in renewable energy and environmental options
• energy efficiency standards: investments are now requiring data centres to adhere to stringent energy efficiency benchmarks, such as the National Australian Built Environment Rating System (NABERS) ratings, to reduce operational costs
• innovative cooling solutions: advanced cooling technologies, such as liquid immersion cooling, in gaining popularity for being highly efficient with reduced environmental impacts

And solutions to energy, water, waste and resource usage of data centres are becoming more advanced with the next generation of Australia’s data centre focused on sustainability, starting with design.

From a design perspective, the focus will centre on:

• energy: integrating on site renewables, utilising private PPAs (power purchase agreements), and using liquid cooling to reduce consumption

• water: transition toward closed loop cooling systems (re-using the water instead of discharging the water) and air-cooled alternatives to minimise water usage

• waste: using modular construction and retrofitting to reduce embodied carbon and material waste

• resources: emphasis on Green Star certifications and circular economy practices across construction and operations

As AI become more prominent, operators are “forced to reimagine resource planning”, Fitzalan-Howard said, including using AI in energy modelling and managing heat reuse, which is accelerating sustainability improvements in the sector.

The challenges and opportunities for the government

With the sharp increase in energy and resource consumption closing in on the country, the government can no longer look away from the threats and opportunities that come from the growing sector.

On Wednesday, news broke that the NSW government had banned any more data centres at Macquarie Park, northwest of Sydney, to make way for housing.

The data centre industry had been lobbying to identify alternative development zones for players such as AirTrunk owner Blackstone, Goodman and NextDC – but to limited success.

The government is arguing that the area needs to increasingly move towards higher density, thanks to the two metro stations in its area. But the Property Council of Australia is demanding a statewide strategy for future builds in both planning and energy usage, or the flood of investments, which hit $6.7 billion last year, will dry up, it says.

Even Australia’s Energy Market Operator (AEMO) is requesting that the energy grid rules be changed to properly accommodate the surge in demand from data centres to “future proof” the grid and avoid cascading failures throughout the system, pointing to recent reports of power distortion and looming power failures, likely to cause billions in the United States.

Fitzalan-Howard says that there is a strong case for government support and identified some areas of opportunity for the government, including:

• national alignment on power usage standards
• clearer sustainability targets
• support for grid capacity upgrades

The federal government already tries to influence the sustainability outcomes in the sector with:

• the National Greenhouse and Energy Reporting (NGER) Act that mandating large corporations, including data centres, to report their greenhouse gas emissions and energy consumption
• updated NABERS Rating: from mid-2025, data centres hosting federal agency workloads must achieve a five-star NABERS rating

But more work is required to reach a “more comprehensive policy and further enhance sustainability…[by] setting benchmarks for energy and water use, incentivising renewable energy adoption, and mandating detailed environmental reporting.”

Opportunities are also moving to Melbourne and beyond

Thanks to opportunities drying up in Sydney, Melbourne may emerge as the next hub for data centres.

Fitzalan-Howard said the city was “less saturated than Sydney”, and offers faster planning approvals, and it has more potential to meet hyperscalers’ demand.

Melbourne offers strategic positioning for edge deployments (deploying computing and storage resources at the location where data is produced) and interconnection (private exchange of data between businesses).

It also offers better opportunities when it comes to “precinct-scale energy sharing, battery storage, and solar-powered developments, particularly in greenfield campuses.”

But challenges still lie ahead for Victorian grid providers and the state government, which need to be aware of the consequences “if power planning doesn’t keep pace.”

Operators also need to be held to “environmental scrutiny” to ensure transparent reporting, and onus could also be on them to address potential skill shortage – due to needing highly skilled labour for AI-grade facilities.

The company’s head of industrial investments, Angus Klem, also pointed to Perth gaining more traction in the industry over the coming years, and that “the momentum in the data centres sector will flow through to every Australian capital city.”

Fitzalan-Howard said Australia’s advantage with data centres could help accelerate the nation’s innovation precincts thanks to AI, cloud and advancing quantum technologies, creating spillover benefits in research, education, and advanced manufacturing.

“A move toward district-scale data precincts with integrated energy solutions could define the next decade.”

Stephen Beard added, “Operators, investors, policymakers, and partners each have a role to play in shaping this future. The task ahead is to build infrastructure that not only supports innovation but also safeguards sustainability, security, and equity.”