Australia has established itself as the world's second most attractive data centre investment market, with only the United States receiving more capital inflow in this rapidly expanding sector.  

According to a new report from Knight Frank, Australia received US$6.7 billion in data centre investment in 2024, making it the second-largest recipient globally behind the United States, which attracted US$14.6 billion. The report projects the global data centre market will reach a staggering US$4 trillion in value by 2030, growing at an annual rate of 18 per cent over the next five years.

This growth comes despite recent concerns about slower leasing pace in new facilities by major tech companies, which has affected data centre stock valuations. However, analysts suggest this represents tech giants becoming more selective rather than a fundamental decline in demand.

Knight Frank's global head of data centres, Stephen Beard, said the industry's imminent transformation comes as companies look for markets with reliable power access and favourable regulations.

"As global capital races to capture the next wave of digital infrastructure growth, the competition for prime development sites, particularly in power-constrained locations, will intensify," Mr Beard said.

The report identifies Melbourne as Australia's emerging data centre hub, positioned to challenge Sydney's traditional dominance. Melbourne's advantage stems from greater power availability, making it attractive for new developments.

This finding aligns with an earlier M3 Property report that revealed 75 per cent of all new data centre projects in Australia were located in the Victorian capital. Melbourne is expected to see numerous ultra-high-density facilities developed on the city's periphery, many designed specifically to support AI workloads.

Power supply remains a critical factor for data centre markets globally, with many developers now prioritising renewable energy solutions and energy-efficient designs to meet growing demands while addressing sustainability concerns. 

The broader Asia-Pacific region is projected to increase data centre capacity by 4,174 megawatts (32 per cent) by 2027, with planned investments exceeding US$58.7 billion over the next two years.

Australia's substantial land resources position it well to capitalise on this growth trend, with Knight Frank saying that real estate investors are increasingly focused on "acquiring strategically located land and securing long-term power agreements" to meet the sector's explosive demand.