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Melbourne emerges as Australia's fastest-growing data centre hub with 25.4% capacity growth, 934.8MW pipeline, and $13B investment creating opportunities for property investors.
Melbourne is rapidly closing the gap with Sydney in Australia’s data centre market, with supply nearly tripling to 4.7GW as land and power constraints push development southward. According to Knight Frank’s latest Asia-Pacific Data Centre report, Melbourne’s live IT capacity has reached 337.1MW, marking a 25.4% year-on-year increase that positions Victoria’s capital as the nation’s fastest-growing digital infrastructure hub.
Knight Frank Partner and 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 stated.
Klem explained that Melbourne offers advantages over Sydney’s increasingly constrained market. “With Sydney grappling with land power constraints Melbourne presents a more attractive alternative, offering larger, more accessible land parcels and fewer grid limitations.”
For property investors, developers, and technology enthusiasts in Victoria, Melbourne’s data centre growth represents both a remarkable transformation and a significant opportunity. The city now hosts dedicated cloud regions from all four major US providers - Amazon Web Services, Microsoft, Google, and Oracle - while boasting an impressive pipeline of 934.8MW in committed and under construction projects. This rapid expansion represents nearly 75% of all data centre developments currently under construction across Australia, creating what many industry experts describe as a digital infrastructure goldmine in Australia’s cultural capital.
The numbers tell the story
Melbourne’s data centre market has experienced explosive growth that defies traditional industry patterns. The city’s live IT capacity of 337.1MW represents a dramatic increase that positions Melbourne as a serious competitor to Sydney’s established dominance in Australia’s data centre landscape.
The development pipeline tells an even more compelling story. With 934.8MW of projects committed and under construction, Melbourne’s future capacity will nearly triple its current levels. This pipeline includes major hyperscale facilities designed specifically for artificial intelligence workloads, which have become the primary driver of data centre demand across the region.
Investment flows reflect this momentum. The data centre sector attracted over $13 billion in investment nationally during 2024, with yields stabilising around 5% - attractive returns that have captured the attention of institutional investors, private equity firms, and specialist REITs. Amazon’s announcement of a $20 billion investment programme from 2025 to 2029 across Sydney and Melbourne further validates the scale of opportunity in Victoria’s data centre market.
Perhaps most significantly, artificial intelligence represents 95% of all colocation take-up in Melbourne. In the first half of 2025, Melbourne saw 127.6MW of transacted capacity, with artificial intelligence remaining the primary driver of demand. This AI-driven demand reflects the fundamental shift occurring in data centre requirements, with hyperscale operators seeking high-density facilities capable of supporting next-generation computing workloads.
Melbourne’s data centre development has responded to this demand with purpose-built facilities that offer the power density and cooling capabilities required for AI infrastructure.
Major operators continue to invest heavily in the region. NEXTDC increased its 2025 capital expenditure guidance by $100 million, citing rising AI-related demand. Meanwhile, AWS announced a significant $20 billion, five-year investment programme across Sydney and Melbourne.
Why Melbourne is outpacing Sydney
Melbourne’s ascendancy in Australia’s data centre market stems from several strategic advantages that address the constraints limiting Sydney’s continued expansion. As Klem noted, “With Sydney grappling with land power constraints Melbourne presents a more attractive alternative, offering larger, more accessible land parcels and fewer grid limitations.”
Land availability represents Melbourne’s most significant advantage. The city offers larger, more accessible industrial land parcels suitable for hyperscale data centre development. Sydney’s mature market has resulted in limited suitable sites, driving up land costs and constraining development options. Melbourne’s industrial precincts provide the space required for campus-style developments that modern data centre operators prefer.
Power infrastructure gives Melbourne another competitive edge. The city faces fewer grid limitations compared to Sydney’s increasingly constrained electrical network. Melbourne’s proximity to renewable energy sources in Victoria enhances its appeal to developers prioritising environmental, social, and governance goals. This renewable energy access aligns with the sustainability requirements of major technology companies seeking to power their operations with clean energy.
Cost advantages make Melbourne development more economically viable despite high construction costs across Australia. While Melbourne’s construction costs remain among the highest in the Asia-Pacific region, competitive pricing compared to Sydney makes projects more feasible. The availability of larger land parcels also enables more efficient facility designs that optimise capital deployment.
Victoria’s responsive regulatory environment provides additional momentum for Melbourne’s data centre growth. The state government’s supportive approach to digital infrastructure development creates a more predictable approval process compared to other jurisdictions. This regulatory clarity reduces development risk and enables faster project delivery timelines.
Despite Melbourne’s rapid growth, Sydney remains Australia’s largest data centre market. According to the Knight Frank report, Sydney’s aggregate supply grew by 16.4% in the first half of 2025, surpassing the 5.2GW mark. During this period, 18.9MW of new capacity became operational, bringing total live IT capacity to 757.0MW.
However, as Klem observed, “Sydney continues to operate as a traditional cloud market, with steady pre-lets and slower ramp-ups. Rising costs, land and power constraints limit scope for AI expansion and customers are increasingly leveraging Sydney’s connectivity to service regional cloud demand.”
Melbourne’s talent pool and business environment support the operational requirements of modern data centre facilities. The city’s technology sector provides skilled professionals capable of supporting complex digital infrastructure operations, while Melbourne’s established position as Australia’s second-largest city ensures access to supporting services and suppliers.
The strategic positioning of all four major US cloud providers in Melbourne validates the city’s infrastructure credentials. Amazon Web Services, Microsoft, Google, and Oracle have established dedicated cloud regions in Melbourne, creating a foundation for broader ecosystem development. This hyperscaler presence attracts enterprise customers and supporting technology companies to Melbourne’s data centre market.
Investment landscape and opportunities
Melbourne’s data centre investment landscape presents compelling opportunities across multiple investor categories and development types. The sector’s growth trajectory, supported by fundamental demand drivers and strategic advantages, has created an investable universe that appeals to both local and international capital.
Australia’s data centre investable universe totals approximately $30 billion, with Melbourne representing a significant and growing portion of this market. Industry forecasts project substantial expansion of this investable universe through the remainder of the decade, driven by continued facility development and the maturation of existing assets. This growth trajectory requires syndicated capital structures that will attract a broader pool of institutional investors to the sector.
Yield stability underpins Melbourne’s investment appeal. Data centre assets typically deliver 5% yields supported by long lease terms and strong credit covenants from major technology companies. These characteristics provide attractive risk-adjusted returns compared to other commercial real estate sectors, particularly given the growth outlook for digital infrastructure demand.
Major transactions demonstrate investor confidence in Melbourne’s data centre market. Blackstone and Canada Pension Plan Investment Board’s approximately $24 billion acquisition of AirTrunk represents the largest global data centre merger and acquisition deal of 2024. HMC Capital’s acquisition of iSeek for approximately $400 million and the sale of a minority CDC Data Centres stake for approximately $1.65 billion in early 2025 further illustrate the scale of capital deployment in Australian data centres.
NEXTDC’s recent opening of its $1.5 billion Melbourne facility, offering 150MW of power capacity, exemplifies the scale of investments being made in mega data centres. Additionally, STACK Australia’s ongoing construction of a 72MW campus in Melbourne’s western suburbs, scheduled for completion in 2024, further demonstrates the market’s robust growth trajectory.
Development opportunities span multiple facility types and scale levels. Hyperscale facilities designed for major cloud providers represent the largest investment category, with individual projects requiring hundreds of millions in capital deployment. Colocation facilities serving enterprise customers offer different risk-return profiles, while edge data centres supporting 5G and Internet of Things applications present emerging opportunities.
NEXTDC’s capital expenditure guidance increase of $100 million for 2025, citing rising AI-related demand, demonstrates how established operators are scaling investment to capture growth opportunities. These expansion programmes create partnership opportunities for property developers and financial investors seeking exposure to Melbourne’s data centre growth.
Land banking has emerged as a strategic approach for investors seeking to capitalise on Melbourne’s data centre expansion. International institutional investors, private equity firms, and specialist REITs are actively securing prime sites for future development, recognising that suitable land with power access will become increasingly scarce as the market matures.
The investment landscape also includes opportunities in supporting infrastructure and services. Data centre development requires specialised construction capabilities, advanced cooling systems, and backup power infrastructure that create investment opportunities beyond the core facility assets.
Planning and development requirements
Data centre development in Melbourne operates within Victoria’s established planning framework, which balances infrastructure growth with community and environmental concerns. Understanding these requirements represents a critical success factor for developers and investors entering Melbourne’s data centre market.
Key planning framework elements
The Melbourne Industrial and Commercial Land Use Plan provides the strategic framework for data centre development across metropolitan Melbourne. This plan identifies industrial land suitable for large-scale infrastructure projects while protecting employment land from inappropriate rezoning.
Data centres typically require industrial zoning that permits utility infrastructure and high-power industrial uses. Modern hyperscale facilities often require 10-50 hectares of land to accommodate multiple buildings, supporting infrastructure, and future expansion. These sites must provide access to high-voltage electrical infrastructure, telecommunications connectivity, and transport links.
Power capacity represents the most critical infrastructure requirement. Modern AI-optimised facilities require substantial electrical capacity, with individual buildings consuming 20-100MW of power. The Australian Energy Market Operator reported a surge in 2025 power applications ranging from 100MW to 600MW with some projects targeting grid connection within two years.
Planning permit applications for data centres typically require comprehensive environmental impact assessments, traffic studies, and noise management plans. Community consultation has become increasingly important as data centre development moves into suburban industrial areas. Local councils assess applications against criteria including employment generation, infrastructure capacity, and compatibility with surrounding land uses.
Victorian planning schemes include specific provisions for utility infrastructure that can apply to data centre developments. These provisions recognise the state significance of digital infrastructure while ensuring appropriate environmental and community protections. The Commercial 3 Zone has been developed to support enterprise precincts that can accommodate data centre development in appropriate locations.
Construction requirements for data centres involve specialised building systems that differ significantly from conventional industrial development. Facilities require advanced cooling systems, backup power generation, fire suppression systems, and security infrastructure. Lead times for critical equipment such as generators and transformers have extended due to global supply chain constraints, requiring careful project planning.
Sustainability requirements increasingly influence data centre planning and development. Major technology companies require facilities to meet strict environmental performance standards, including renewable energy access and water efficiency. The National Australian Built Environment Rating System offers a data centre program that provides financial contributions of up to $8,000 for owners pursuing energy efficiency improvements.
Development feasibility must account for the high capital intensity of data centre construction. Costs in Melbourne rank among the highest globally due to labour shortages, material costs, and the technical complexity of modern facilities. However, the long-term lease commitments and credit quality of data centre tenants typically support these capital requirements.
Future outlook and emerging trends
Melbourne’s data centre market outlook reflects broader technological and economic trends that will shape digital infrastructure development over the coming decade. The convergence of artificial intelligence, edge computing, and sustainability requirements creates both opportunities and challenges for market participants.
Artificial intelligence workloads represent the primary growth driver for Melbourne’s data centre market. AI applications require substantially more computing power than traditional cloud workloads, with individual AI servers consuming 10-20 times more electricity than conventional servers. This demand pattern favours Melbourne’s newer, high-density facilities designed specifically for AI infrastructure requirements.
Market projections indicate continued strong growth through 2030. The Australia data centre market is forecast to grow at a compound annual growth rate of 3.93%, reaching $8.58 billion by 2030. Melbourne’s share of this growth is expected to increase given the city’s competitive advantages and development pipeline. Power capacity additions of 1,887MW are projected across Australia during 2025-2030, with Melbourne capturing a significant portion of this expansion.
Knight Frank’s Head of Data Centres Asia-Pacific, Fred Fitzalan Howard, noted the complexity of coordinating this rapid growth. “The sheer volume of new projects in the region highlights just how important the region has become in the global digital infrastructure landscape,” he said.
“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.”
Hyperscale facility development will continue to dominate Melbourne’s data centre investment landscape. Major technology companies are projected to exceed $160 billion in combined capital expenditure during 2025, with a substantial portion directed toward data centre infrastructure. Amazon’s projected capital expenditure exceeding $100 billion for 2025, up from $82 billion in the previous year, illustrates the scale of infrastructure investment underway.
Edge computing represents an emerging trend that will create new development opportunities in Melbourne. As 5G networks expand and Internet of Things applications proliferate, demand for smaller data centres located closer to end users will increase. These edge facilities require different site characteristics than hyperscale data centres, potentially opening new location options within Melbourne’s metropolitan area.
Sustainability requirements will increasingly influence data centre development and operation. Environmental, social, and governance criteria from major technology companies are driving demand for renewable energy access and energy-efficient facility design. Melbourne’s proximity to Victoria’s renewable energy resources positions the city advantageously for developers seeking to meet these requirements.
Technology evolution will reshape data centre facility requirements over the forecast period. Advances in cooling technology, server efficiency, and facility automation will influence optimal facility designs. The flexibility to adapt to changing technology requirements represents a key factor for long-term asset value in Melbourne’s data centre market.
Australia’s privileged access to Nvidia AI chips, as one of only four nations in the Asia-Pacific region exempt from export restrictions, provides a strategic advantage for Melbourne’s data centre growth. This access enables deployment of the latest AI hardware, supporting Melbourne’s positioning as a regional hub for artificial intelligence applications.
The global data centre market’s projected compound annual growth rate of 18% through 2030, reaching $4 trillion, provides context for Melbourne’s opportunity within the broader digital infrastructure landscape. Melbourne’s established position within this global growth trajectory positions the city to capture a disproportionate share of investment and development activity.
Melbourne’s emergence as Australia’s fastest-growing data centre hub represents a fundamental shift in the nation’s digital infrastructure landscape. The city’s 25.4% year-on-year capacity growth, 934.8MW development pipeline, and strategic advantages over Sydney have created what industry experts recognise as a digital infrastructure goldmine in Victoria.
The investment opportunity spans multiple dimensions, from hyperscale facilities serving global technology companies to supporting infrastructure and land banking strategies. With yields around 5% supported by long-term leases and strong credit covenants, Melbourne’s data centre market offers attractive risk-adjusted returns for property investors and developers seeking exposure to digital infrastructure growth.
Success factors include understanding Melbourne’s planning framework, securing appropriate industrial land with power access, and recognising the transformative impact of artificial intelligence on data centre requirements. The city’s responsive regulatory environment, renewable energy access, and talent pool provide competitive advantages that support continued growth.
For stakeholders in Victoria’s property and technology sectors, Melbourne’s data centre boom represents both immediate opportunities and long-term value creation. The convergence of AI-driven demand, strategic location advantages, and substantial capital commitments from major technology companies has positioned Melbourne as a critical hub in the global digital infrastructure network.
Melbourne’s role in Australia’s digital future extends beyond individual investment opportunities to encompass the city’s position as a regional technology centre. The presence of all four major US cloud providers, combined with substantial local investment from companies like NEXTDC and AirTrunk, creates an ecosystem that will support broader technology sector development across Victoria.
As artificial intelligence continues to reshape computing requirements and global technology companies expand their infrastructure footprints, Melbourne’s data centre market stands poised to capture a disproportionate share of this growth. The city’s transformation from Sydney’s shadow to Australia’s digital infrastructure goldmine reflects the dynamic nature of technology infrastructure development and the opportunities available to forward-thinking investors and developers in Victoria.
Further questions
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