[+] DAs Pile Up as Data Centre Growth Skyrockets

Experts are tipping Sydney is about to be usurped as the epicentre of Australia’s booming $4.7-billion data centre market as operators look south.

About 90 per cent of the world’s data has been created in the past two years—the sector has grown an average of 15 per cent each year for the past five years in Australia and there are no signs it is slowing down.

But with net zero carbon targets on the horizon, data centre operators are focused on reducing power usage effectiveness (PUE) scores to as close to 1 as possible while also using passive design to more efficiently cool large data storage facilities.

Data centres need to maintain a constant power supply and a temperature under 25C around the clock to ensure the critical IT infrastructure is protected.

Many use liquid cooling systems, but experts are forecasting a shift of these centres to Melbourne and Canberra where cooler temperatures could reduce the climate control needed during the winter months.

Sydney data centre heartland

Sydney is arguably the cornerstone of the nation’s data centre market presently, with about a third of the market located in the outskirts of Australia’s most expensive city.

Sydney already provides about 430 megawatts (MW) of third-party data centre capacity, with a further 1200MW in the development pipeline, including ARUP’s recently lodged plans for a 190MW two-building facility at Kemps Creek, and Macquarie Data Centres’ plans for an expansion at Macquarie Park.

Data centres by location

CityNumber of data centres
Gold Coast2

^Source: CloudScene

Colliers national director of industrial David Hall said Sydney had been a logical choice as the engine room of Australia’s business and financial districts, but this could shift in the near future.

“It is home to Australia’s key financial and economic hub and is the major landing port for submarine communication cables that connect directly to Asia and the US,” Hall said.

“The pipeline is underpinned by AirTrunk’s planned SYD3 facility at Blacktown (320MW at full capacity), and NextDC’s plans to build a 300MW facility at Horsley Park named S4.”

Data centre operators have targeted city outskirts for cheaper land to develop but with the drive towards net zero targets, PUEs have to be reduced—and operators are keen to explore any way they can to achieve that.

▲ ARUP has lodged a state significant development application for a 190MW data centre at Kemps Creek.
▲ ARUP has lodged a state significant development application for a 190MW data centre at Kemps Creek.

Arup plans Sydney data centre

Multinational professional services company Arup has lodged plans for a $332-million 190MW data centre at Kemps Creek recently.

The development at 707-769 Mamre Road at Kemps Creek is on a 14.4ha site and will accommodate two two-storey data storage buildings, 61 generators, a substation, 30 diesel tanks, office space and internal roads, and have a combined gross floor area of 60,943 square metres.

The Greenbox Architecture-designed development has a capital improved value of $1.29 billion and is expected to boost jobs in the region, which has been earmarked as an employment hub.

According to development application documents, global mobile data traffic has increased 49 per cent since the pandemic began.

“This rapid global increase is projected to continue to grow 31 per cent a year to 2025,” the report said.

“Demand for data centres in Sydney increased by 76 per cent in 2019 compared to only 34 per cent in Tokyo and 27 per cent in Hong Kong.

“Most demand for data storage in Sydney is from the government with demand also increasing from internet and technology, healthcare, education and financial service providers.

“The proposed development responds to this increasing demand and supports the continued drive for business development across Sydney and New South Wales, leading to longer-term and sustained economic growth through the provision of critical digital infrastructure.”

▲ Macquarie Data Centres is expanding its Macquarie Park campus to increase its offering to 61MW with the addition of a new 5-storey building.
▲ Macquarie Data Centres is expanding its Macquarie Park campus to increase its offering to 61MW with the addition of a new five-storey building.

Macquarie Data Centres expands Sydney footprint

Down the road at Macquarie Park, Macquarie Data Centres, which also has data centre assets in Canberra, has lodged plans to extend its data centre campus with a third building on the site, expanding its offering to 61 megawatts.

The new five-storey building will provide an additional 9097sq m of floor space with a capital improved value of about $289 million.

According to the environmental impact statement for the proposed data centre expansion, Macquarie Park is strategically important as a health and innovation precinct.

“The proposed development would provide data storage solutions for both public and private cloud, not just public cloud, [which] enables the data centre to support services for multinational corporations that require their own private hosting solutions as well as tier 1 government agencies,” the report said.

“The subject site will be one of the most advanced data centres in Sydney, a vital investment in supporting economic growth, creating jobs of the future, building sovereign security skills, and offering protection against cyber threats.”

The HDR-designed data centre is targeting a PUE of 1.3.

Data centre hubs of Australia


^Source: Colliers Data Centre Insight report

Flight to cooler climates

Regional areas in southern Australia are growing more appealing not only because Sydney’s fringe land is becoming more difficult to secure but also because cooler climates could help to reduce energy consumption.

Colliers is predicting data centre operators will turn to Melbourne and Canberra for development opportunities.

It says these region’s climates will attract data centre operators because the colder winters and lower ambient temperatures mean less power is required to maintain the right temperature for the internals of the buildings.

While Melbourne and Perth have more than 40 data centres apiece, Canberra has just 13 and is a relatively untapped market.

As well, regional edge centres are beginning to flourish in smaller towns as they do not require the significant infrastructure of big data centres.

Edge data centres are small data centres on the edge of a network. They are closer to end users and are housed in smaller buildings.

▲ The NSW government has accelerated the data centre approval process to help stimulate the economic recovery, as demand for investment opportunity outstrips supply.
▲ The NSW government has accelerated the data centre approval process to help stimulate the economic recovery, as demand for investment opportunity outstrips supply.

Institutional investors move into tight market

The Asia Pacific region has attracted significant investment in the sector in the past two years. Last year investment totalled $4.5 billion and in the first nine months of 2021 it was already up to the $3.8-billion mark.

The asset class used to attract an annual investment of about $1.2 billion, between 2015 and 2019, but institutional property funds are now chasing the sticky asset class alongside other industrial assets. There are more than 270 data centres across Australia.

Colliers director of research Luke Crawford said data centre yields varied between 4 per cent and 6 per cent depending on the location, covenant and age of the facility.

“[But] selected assets with a long WALE, if they were brought to market today, they would be expected to trade closer to 3.5 per cent,” Crawford said.

“Pricing at this level is broadly in line with other global markets, albeit Hong Kong and Tokyo being at the lower end of the range.”

Demand for the niche industry has increased significantly during the past two years. According to Colliers research, about 30 per cent of global data centre transactions have been in the Asia Pacific region, predominantly through equity investment.

Macquarie Group acquired an 88 per cent stake in AirTrunk’s data centre business last year, while Centuria’s Industrial REIT bought up the Telstra Data Centre at Clayton for $416 million, also last year.

The rush to find the right land has crunched the market with large operators including Microsoft, Digital Realty and NextDC buying up large-scale sites across Australia, including NextDC’s Horsley Park site where it plans to build a 300MW data centre.

Digital Realty bought a 16.2ha site in Western Sydney for two data centres.

The market is expected to continue its upward trend and more institutional investors will flock to the market as yields and opportunities tighten across the industrial sector.

Pandemic-induced demand for data

While the pandemic has led the move to cloud-based applications and working remotely online, the shift to online retail shopping has grown exponentially creating the perfect storm for data demand.

Online retail’s market penetration recorded five years’ worth of growth in 12 months, growing from 9.3 per cent to 13.2 per cent in 2021. It is forecast to be account for about 18 per cent of retail trade by 2025.

The pandemic has accelerated the pace of data centre take-up, and the New South Wales government has declared the developments as state significant, due to scale, cost and importance to the state’s economic recovery.

The NSW government has estimated the economic contribution of a data centre to be about $1 billion in construction and fit-out costs.

Globally, Australia represents about 10 per cent of the market, but it is gaining traction with international investors, and data centre operators are developing a rich pipeline of developments to meet surging demand.

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Article originally posted at: https://www.theurbandeveloper.com/articles/data-centres-development-southern-migration