Partner Sydney
"Investment in data centres in Australia is forecast to nearly double by 2028."
There are good reasons behind this trend. Australia is a liberal democracy with a stable business environment and is geographically well-placed to provide connectivity with the Asia-Pacific region through undersea cables. The Australian government has recently listed AI as one of seven technologies critical to its national interest and is investing AUD$101m in quantum and artificial intelligence.²
There are unique challenges and opportunities in the growth of Australia’s data centre sector for new investors and developers as well as established players.
Market overview and trends
Data centres are integral to digital transformation and critical to decarbonisation. They are not only physical facilities and include computing networks and storage resources. Whilst data centres are no longer solely focussed on physical storage space, they require significant physical infrastructure such as power substations, ventilation and cooling systems, constant and reliable power and connections to external networks.³
As a data centre hub, Australia is currently fifth in the world behind the USA, China, the UK and Germany for data centre built-out capacity and currently has more than 300 data centres nationally.⁴ In 2024, Australia’s market portfolio (all tradeable assets) in the data centre sector amounted to AUD$23bn. CBRE predicts that this will grow to at least AUD$40bn by 2028, taking into account the current investment pipeline and the growing demand for AI related products.⁵
The concentration of Australian data centres is predominantly in Sydney (60%) but investment in Melbourne is expected to double in the next five years. There is also significant investment being made in Brisbane, Canberra and Perth.⁶
One of the challenges arising from the exponential growth in investment in data centres is the corresponding demand for electricity. One large data centre can use as much electricity as 50,000 homes. Morgan Stanley estimates that data centres used 5% of Australian power in 2024 and predicted this would increase to 8% by 2030.⁷
Financing structures for data centres
Data centres require substantial capital investment which will generally require access to finance. Given the unique characteristics of data centres, notably their energy consumption and the increasing sophistication and expertise of lenders and borrowers, financing structures are continuing to adapt to the evolution of data centres. This has resulted in a variety of funding structures.
Australia is no exception to this funding diversity. In addition to equity and debt financing, other funding structures include portfolio loans with cross-collateralisation, use of asset-backed securities and trade securities and leveraged finance structures. Unlike in a number of other APAC jurisdictions, ownership of the land on which the data centre is located is generally permitted, subject to some restrictions addressed below. Land ownership and long-term leasehold rights can play a role in determining the appropriate financing structure.
We anticipate that green bonds and green and ESG-linked funding will play an increasingly influential role in the funding of data centres. This is likely to be dependent on the extent to which data centres can be powered using renewable energy.
Incentive structures
"The regulatory environment for data centres in Australia is evolving, providing opportunities and challenges for lenders, developers and investors."
The regulatory environment for data centres in Australia is evolving, providing opportunities and challenges for lenders, developers and investors. The opportunities derive from and revolve around national and state government funding and tax relief. The national federal government aims to position Australia as an APAC regional data centre hub, with a range of incentives to support this. Australia’s states and territories similarly have policies to attract investment and innovation.
The key federal government incentives are:
- the R&D Tax Incentive can help to offset some of the costs to encourage Australian industry to undertake additional R&D activities⁸;
- as part of the 2025–26 Budget, the federal government will extend the clean building managed investment trust (“MIT”) withholding tax concession to data centres and warehouses. This measure will extend eligibility for the MIT withholding rate of 10% on fund payments to data centres and warehouses that meet the relevant energy efficiency standard;⁹
- the Clean Energy Finance Corporation invests in renewable energy, energy efficiency and low emissions technologies; and
- the Australian Renewable Energy Agency provides assistance for projects that promote the adoption of renewable energy and improve energy efficiency.
An example of a state government incentive to promote investment is Breakthrough Victoria, which supports breakthrough ideas and technologies to help create industries of the future. Breakthrough Victoria can provide pre-seed funding, venture capital or growth capital of between AUD 150,000 and 15 million.¹⁰
Regulatory environment
Majority foreign ownership of data centres and commercial land is generally permitted. Investments up to AUD$71m do not require the approval of the Foreign Investment Review Board (“FIRB”). For foreign investors who are partly or wholly owned or controlled by foreign governments, all investment requires FIRB approval.
Data centres are a ‘national security business’ under the Security of Critical Infrastructure Act (2018). This Act currently requires disclosure of ownership and reporting of cyber incidents and permits the federal government to prevent investment or impose conditions on foreign investment in data centres on national security grounds.
The Privacy Act 1988 (“Privacy Act”) governs the handling of personal information by organisations, and requires businesses to adhere to guidelines for collecting, storing, and sharing data, emphasising the protection of personal information. The privacy regime includes the Notifiable Data Breach Scheme under which organisations must notify affected individuals and the Office of the Australian Information Commissioner in the event of a data breach likely to cause serious harm. The Consumer Data Right allows consumers to access and control their data, ensuring transparency and security in data handling. The Consumer Data Right was initially restricted to financial services but now extends to all industries including data centres.
Australia’s relatively claimant friendly class action regime has resulted in class action litigation from recent data breaches. Whilst these have not yet involved data centres as respondents, data breaches involving data centres will likely result in class action litigation against data centre operators.
The Critical Infrastructure Risk Management Program ensures the security and resilience of critical infrastructure, including data centres. Data centres classified as critical infrastructure must implement risk management programmes to mitigate potential threats.¹¹ Where a data centre hosts data that may be used by federal government agencies, it will need to meet additional security and compliance standards specific to government data.
Challenges and Opportunities – how law firms can assist
"The Australian data centre sector is expected to experience significant growth and provide a range of investment opportunities."
WFW is well-placed to support developers and investors take advantage of the opportunities presented by the rapid growth in the data centre in Australia.
1. Cross-border advice
- financing data centres in Australia will invariably involve offshore lenders, regardless of the structures. This will typically involve English or New York and Australian law.
2. Financing and Investment
- structuring financing deals: assisting with the structuring of financing deals, including equity financing, debt financing, and other mechanisms such as leveraged infrastructure finance platforms and asset-backed securitisations; and
- accessing government grants: helping clients identify and apply for federal and state government grants and incentives.
3. Regulatory Compliance
- advising on the requirements for foreign investment approval;
- data sovereignty and privacy laws: ensuring compliance with Australian data sovereignty laws, including the Privacy Act and the Notifiable Data Breach Scheme. This involves advising on data collection, storage, protection, and governance to meet legal requirements; and
- critical infrastructure regulations: navigating the regulatory framework for critical infrastructure, including the Hosting Certification Framework and other relevant legislation.
4. Dispute Resolution
- advising on the most appropriate jurisdiction(s) and law(s) for contract, loan and security agreements;
- advising on the most effective and efficient means of dispute resolution, including mediation, arbitration and expert determination; and
- litigation support: representing clients in court if disputes cannot be resolved through ADR, ensuring robust legal representation and advocacy.
The Australian data centre sector is expected to experience significant growth and provide a range of investment opportunities. We can assist investors to navigate this complex and dynamic landscape and provide solutions that minimise legal risk and maximise financial returns.
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[1] https://www.cbre.com.au/press-releases/australia-s-data-centre-investable-universe-set-to-double-in-four-years
[2] https://international.austrade.gov.au/en/do-business-with-australia/sectors/technology/ai-and-data-centres
[3] https://www.cisco.com/c/en/us/solutions/data-center-virtualization/what-is-a-data-center.html
[4] https://cloudscene.com/market/data-centers-in-australia/all
[5] https://www.cbre.com.au/press-releases/australia-s-data-centre-investable-universe-set-to-double-in-four-years
[6] https://www.cbre.com.au/press-releases/australia-s-data-centre-investable-universe-set-to-double-in-four-years
[7] https://www.abc.net.au/news/2024-07-26/data-centre-electricity-grid-demand/104140808
[8] https://www.industry.gov.au/science-technology-and-innovation/industry-innovation/research-and-development-tax-incentive
[9] https://budget.gov.au/content/bp2/download/bp2_2025-26.pdf, p 4.
[10] https://breakthroughvictoria.com/
[11] https://www.interactive.com.au/insights/data-centre-sovereignty-australia/
Key contacts
Partner Sydney
Associate Bangkok
