Melbourne Steps Out of Sydney Data Centre Shadow

Melbourne, long Australia’s secondary data centre market, is stepping out of Sydney’s shadow as projects and capacity in the Victorian capital ramps up.

New data from Knight Frank’s Asia-Pacific Data Centre report shows total supply in Melbourne nearly tripled to 4.7GW as of the second quarter of this year, as land and power constraints push development south. 

The city now hosts dedicated cloud regions from all four major US providers: AWS, Microsoft, Google, and Oracle, with 95 per cent of colocation take-up driven by AI workloads. 

Live IT capacity is now 337.1MW—a 25.4 per cent year-on-year increase. 

This growth trajectory of data centres in Melbourne is expected to continue, supported by a pipeline of 934.8MW in committed and under construction projects. 

The report found that, in terms of take-up, during the first half of 2025 Melbourne had 127.6MW of transacted capacity, with artificial intelligence remaining a primary driver of demand.

Knight Frank partner, head of industrial investments Angus Klem said Melbourne was stepping into the spotlight as a hub for next-generation digital infrastructure.

“Accelerated demand for cloud and AI services is driving strong growth, supported by a solid industrial real estate base and a favourable business environment,” he said.

“With Sydney grappling with land power constraints, Melbourne presents a more attractive alternative, offering larger, more accessible land parcels and fewer grid limitations.

“However, power availability is also becoming constrained in Melbourne due to extensive builds over the past three years and the rapid ramp up of AI demand. 

“Even so, its proximity to renewable energy sources in Victoria enhances its appeal to developers prioritising ESG goals.”

▲ The report found Melbourne was a more attractive alternative, offering larger, more accessible land parcels and fewer grid limitations.

The Knight Frank report found Sydney was still the biggest data centre market in Australia.

Its aggregate supply grew by 16.4 per cent in the first half of 2025, surpassing the 5.2GW mark. During this time 18.9MW of new capacity became operational, bringing total live IT capacity to 757MW.

Operators and investors continue to scale investment in the region. NEXTDC lifted its 2025 capital expenditure guidance by $100 million, citing rising AI-related demand.

CPC Data Centres is arranging new debt financing, seeking to add circa $1.4 billion. AWS has added further weight to Sydney’s role within its global footprint, announcing a circa $20-billion, five-year investment program across Sydney and Melbourne and separately lodging plans for a circa $450 million 53MW facility at Gregory Hills.

“Sydney continues to operate as a traditional cloud market with steady pre-lets and slower ramp-ups,” Klem said.

“Rising costs, land and power constraints limit scope for AI expansion and customers are increasingly leveraging Sydney’s connectivity to service regional cloud demand.”

The report found that in the first half of 2025, a total of 27.4MW in transactions for data centres was recorded in Sydney, all in the first quarter.

Demand continues to be driven by public cloud providers, which accounted for all co-location take-up during this period.

The report found that in the first half of this year, the region secured nearly 13GW of new project announcements, a 160 per cent increase and more than double the 5GW announced in the same period last year.

The funding needed for these projects already exceeds $270 billion (US$180 billion).

Knight Frank head of data centres Asia-Pacific Fred Fitzalan Howard said the sheer volume of new projects in the region highlighted “just how important the region has become in the global digital infrastructure landscape”.

“However, coordinating this rapid growth is a complex challenge, as operators must keep pace with advances in technology and rising energy needs, all while ensuring new facilities are delivered in step with evolving demands,” he said.