Power plays: plugging into data centre deals
24 November 2025
Ahead of the Deal - Australian M&A Briefing
Key insights
- Demand for Australian data centres consistently outstrips supply, driving record-low vacancy rates and fierce competition for suitable sites
- Data centres are increasingly attractive as a stable, high-growth asset class, shifting capital away from traditional real estate assets, with investors seeking opportunities through both domestic and global partnerships.
- New joint ventures and partnerships between seasoned data centre players and new market entrants leverage complementary skillsets and priorities to address high barriers to entry and substantial upfront capital requirements.
- Expect increased deal activity - With reforms to attract investment and facilitate new data centre builds (including green energy projects) expected, both new market entrants and existing asset owners will look for ways to secure or free up capital.
- M&A strategies need to factor in further transparency and scrutiny - Due to the elevation of data centres to a national interest, predicted supply shortages, expected industry consolidation, and reforms to Australia’s merger clearance and foreign investment review.
Data centres are an increasingly attractive, supply-constrained asset class
Australia's data centre market is experiencing robust and accelerating domestic and international demand that consistently outpaces available supply, resulting in some of the lowest vacancy rates in the world.
A recent softening in commercial real estate in Australia has freed investment capital, with investors regarding the data centre sector as a stable and lucrative asset class, offering opportunities through both domestic developments and strategic global partnerships.
Data centres are attractive as a supply-constrained asset class. Limited availability of suitable, infrastructure-ready sites in key markets like Sydney and Melbourne combined with rising build costs and high barriers to entry have created a hyper-competitive investment climate. This dynamic drives stronger valuations, accelerates lease take-up, and increases the land value of viable sites.
This combination of strong, predictable demand growth, constraints on new supply, and significant barriers to entry gives sophisticated investors confidence that substantial up-front capital commitments will yield predictable, long-term returns.
Data centres are not simply digital infrastructure or technology assets – they also share characteristics with traditional infrastructure and real estate assets, attracting a diverse spectrum of investors with varying priorities.
Unprecedented M&A and investment activity
Australia’s data centre sector in 2025 has been dominated by a mix of domestic champions and global hyperscale players, each scaling rapidly to meet surging demand from AI, cloud, and sovereign data requirements. The multi-billion dollar investments by hyperscalers and domestic funds are expanding AI and cloud infrastructure in Sydney, Melbourne and Brisbane.
This year has seen unprecedented levels of market activity, with private equity, real estate investment trusts (REITs), superannuation funds, existing data centre operators and other financial investors as well as new market entrants. Investment appetite is only expected to grow, with Australia's investible universe for data centres projected to exceed AUD$46 billion in coming years.
In a market defined by insatiable demand, supply side scarcity, and challenging constraints, the right investments can bring not only strong financial performance, but competitive advantage to businesses staking their future on AI-powered innovation (and the digital infrastructure to make it happen).
Securing the necessary real estate, water, and (most importantly) power for data centres remains a challenge. New market entrants are partnering with experienced data centre investors and operators, leveraging complementary skillsets and investment priorities.
Governments actively seek to attract data centre investment and facilitate deployment. These initiatives will likely drive further deal activity, but are unlikely to fully satisfy escalating demand for both data centres and the energy assets required to power them.
As we have seen in the retail telecommunications market following the rollout of the National Broadband Network, government policies that spur investment activity will likely be followed, in time, by industry consolidation.
| Understanding data centres: a quick guide | |
| What is a data centre? | A data centre is a highly secure facility, purpose-built to house servers and other IT equipment for customers who need to store, process, and transmit large volumes of data. Rather than maintaining their own on-premises infrastructure, businesses and government agencies can “co-locate” their critical hardware in a data centre, benefiting from the centre’s robust physical and cyber security protections. |
| What do data centres sell? |
Primarily space (racks, cages, or suites for equipment), power (with high reliability and redundancy), and environmental controls (such as advanced cooling and fire suppression). Security—both physical (guards, biometric access, CCTV) and cyber—is paramount as data centres often hold sensitive and confidential data for customers. Service level agreements (SLAs) are typically strict, especially around uptime, power availability, and temperature/humidity controls. Investors will need to assess any material security breaches/incidents as part of the due diligence process. Even brief outages can have multi-billion-dollar impacts, as seen in recent high-profile incidents involving global cloud providers. As a result, data centres are engineered to deliver near-uninterrupted operations, often targeting “five nines” (99.999%) availability. Consequently, reliability of a data centre asset is a key priority for owners and investors. |
| Upfront investment and capital upgrades |
Like many infrastructure assets, data centres require large up-front investment, as well as ongoing maintenance. But unlike other infrastructure assets, data centres are a long-term investment in a market defined by rapid and ongoing technology change. As technology develops, data centre requirements change. Hardware and efficiency standards evolve quickly. This requires continual and sometimes less predictable capital upgrades, making ongoing asset management for investors more dynamic than for a traditional real estate asset. |
| Revenue streams and customer agreements |
Compared to some other digital infrastructure assets, data centre revenue streams can be less predictable. Co-location agreements (where customers rent space and power) are often relatively short-term—around five years on average. However, longer-term contracts are common for “anchor” or “offtaker” tenants, where a data centre is built to the customer’s specifications and then further subsidised by additional co-location customers. This mix of contract lengths and customer types means investors need to carefully assess the stability and risk profile of each data centre asset during the due diligence phase. |
| Regulatory landscape |
Australian data centres are subject to a complex regulatory environment. The Security of Critical Infrastructure Act 2018 (SOCI Act) applies where data centres provide services to other regulated entities, and there are additional rules which govern the hosting of government data. Demonstrable compliance with these regulations is essential, particularly for facilities serving customers in sensitive sectors such as finance, utilities, and the Government. Buyers and sellers in transactions should be conscious that due diligence is not only focussed on whether a data centre is compliant with applicable laws and regulations, but whether compliance can be demonstrated – buyers of data centre assets with poor transparency will need to factor in regulatory friction, and potentially post-acquisition uplift programs (which involve additional costs). Therefore, in-depth regulatory due diligence will be essential. |
| What drives customer demand? |
Customer priorities vary. For many, low latency (minimal delay in data transmission) is critical, making proximity to major business hubs like Sydney and Melbourne highly desirable. However, not all customers prioritise latency — some seek secure data storage, disaster recovery, or “transit” locations to connect international offices. As a result, the ideal data centre location and configuration can differ significantly depending on the customer’s needs. |
What makes data centre investment different?
Local demand is strong, consistent, and growing – largely driven by AI
Australian business and the Australian Government have a strong and growing appetite for data centres to host private and secure artificial intelligence systems within Australia. Factors driving this include the need for lower latency, operational resilience, and regulatory pressures to keep data and critical operations onshore.
The Australian data centre market is expected to continue its robust growth, driven by further advancements in AI, 5G/6G, automation and 'Internet of Things', cloud computing, and digital transformation initiatives across all industries.
Co-location is Australia's fastest growing segment – with good reason
Co-location facilities to house AI systems are the fastest growing demand segment in Australia, with Australian businesses looking to build secure, separate, and controlled environments to enable resilient and secure AI innovation – and avoid regulatory challenges in sharing data with offshore AI models.
For customers, securing co-location facilities is becoming increasingly competitive – although pipelines exist, much of new capacity is pre-committed due to soaring demand, and the need to support the significant up-front capital required for new data centres with locked-in revenue.
An attractive regional hub
Australia's geography and geopolitical position and established infrastructure makes it an attractive hub for building and operating data centres, with supportive governments, a stable regulatory environment, and mature domestic infrastructure.
Australia was designated as a Tier 1 partner under the US export control rules on AI Diffusion (AI Diffusion Rule), providing it with preferential access to advanced US-origin AI chips and model weights, alongside other close allies. This status reflected Australia’s strategic alignment and trusted partnership with the US. However, the AI Diffusion Rule was rescinded in May 2025 before coming into effect, and the US export control regime is currently under review. Notwithstanding this, Australia continues to be regarded as a stable and policy-aligned destination for AI infrastructure investment.
Australia is already well-connected to the Asia Pacific market with submarine cables extending from Sydney and Perth to Singapore, Hong Kong, Guam, Hawaii and New Zealand, and there are plans for many more cables at various stages of maturity.
Subsea cable investment can support data centre demand – either as a transit location or a connection from Australia to the rest of the world, and also drive where data centre capacity is going to be needed.
Power supply remains a significant constraint – and an opportunity
Limitations on power capacity will continue to challenge data centre expansions, with new power assets in the pipeline unlikely to meet expected demand.
Particularly in highly constrained markets like Sydney, new data centre investments need to be supported by strategies to secure, predictable and uninterrupted power supply.
This brings additional complexity and a degree of risk, but deal teams able to secure the right partnerships and power resources can gain a competitive advantage and take advantage of plans for streamlined approvals for data centres linked to green energy investment expected to be announced as part of the Australian Government's National AI Capability Plan by the end of the year.
The value of a data centre asset and its ability to maintain and grow revenue is integrally linked to access to power supply. Due diligence investigations will need to assess not only the stability of power supply contracts, but how these contracts will adapt to likely increases in demand for power, and potentially new green energy power sources coming online.
Investors expect strong returns – but not necessarily locked-in revenue
Data centre investments provide opportunities to securitize cash-flows from revenue sources such as recurring subscriptions for co-location and interconnection services, one-time setup fees, and value-added services.
Traditional investors in passive telecommunications infrastructure are attracted to predictable longer term multi-decade locked-in revenue.
While record-low vacancy rates and expectations that new supply won't meet predicted demands provide investors with a degree of comfort, co-location agreements (the fastest growing demand sector for data centres) are generally for a maximum term of 5 years – they are not long-term stable sources of locked-in revenue.
Built-for-purpose data centres, on the other hand, are considered long-term, stable yield assets, with contracts often spanning 10 to 15 years. However, facilities are often highly customized for the specific customer, bringing end-of-life or re-tenanting risks.
With the large up-front investment required for data centres, investors need frameworks to value long-term asset risks, taking into account factors like the fast evolution of technology, power dependencies, and shifting tenant requirements. Investors will also be keen to test the design and capabilities of data centres to ensure the ability to adapt to new technologies and opportunities for customers.
While it is clear that demand will very likely outstrip supply for data centres capacity, buyers need to get a good understanding through due diligence and market analysis of just how predictable revenue for particular facilities will be – factoring in contract terms, renewals, and the attractiveness of data centre assets for new customers.
Data centre deal scrutiny
Data centre investments can attract additional regulatory scrutiny and requirements for transparency – largely associated with the types of customers serviced by the data centre (or the data handled). Notification, clearance, and transparency requirements need to be assessed by investors early in the M&A lifecycle, and factored into deal structuring and documents, deal timing, and government, community, and stakeholder communication strategies. The regulations can create complexity for a deal and cause delays in transaction timelines.
Changes in direct or indirect ownership and control of data centre assets are a particular sensitivity for the Australian Government due to the national security implications of certain data centres.
Security of critical infrastructure
The major users of data centres in Australia are often operating in heavily regulated industries and sectors.
Under the SOCI Act, data centre assets are often regulated as “critical infrastructure” because they can provide crucial data storage and processing services to the Australian Government and to companies in designated critical infrastructure sectors including banks, groceries, utilities, and logistics.
In addition to having important operational impacts, this status can attract additional scrutiny and clearance processes for investors. Therefore, the implications of the SOCI Act will need to be considered during the due diligence phase.
An investor that holds interests in data centres that are critical infrastructure assets can be required to report and keep updated information about its interest, the influence or control it has over the asset, as well as information about entities that can directly or indirectly influence or control the investor – including any ultimate beneficial owner and intermediate entities. As a result, investors will need to have information on their corporate structures readily available, and systems in place to allow them to meet such reporting requirements.
Foreign Investment Review Board (FIRB) approval
Foreign investments involving data centres can require approval by the Australian Treasurer under Australia's foreign investment regulatory framework for a range of reasons – including where the data centre is considered critical infrastructure, and where the data handled is classified, or is government or critical infrastructure business critical data. Where the investor is a "foreign government investor", FIRB approval will always be required. Consequently, Australian investors have the upper hand as they do not have to go through the additional hurdle of obtaining FIRB approval.
The Australian Treasurer Jim Chalmers published a discussion paper last month canvassing potential changes to the FIRB regime, including the possibility of an automatic approval pathway for certain low-risk investments – but we may also see tightened approval criteria for investments in sensitive sectors, including data centres.
The danger of foreign investment in data centres exposing sensitive data or critical operations to cyber security, interference or espionage risks will no doubt remain a sensitive issue for the Australian Government. However, attracting foreign investment in data centres and streamlining approval pathways for such transactions are expected to be central components of the Government's National AI Capability Plan, which is expected to be released by the end of 2025. Streamlined FIRB approval processes for, or at least faster review of, low risk foreign investment in data centres will be an important factor in determining whether the National AI Capability Plan can deliver on its promise.
The new (and very public) merger clearance regime
Under Australia’s new merger clearance regime, acquisitions, and investments, particularly by larger organisations, can require mandatory notification to Australia's competition regulator. Data centre deals may attract particular attention given current supply constraints in the market and the potential for industry consolidation.
The new merger clearance regime is a very public one – even if a deal doesn't raise competition concerns, it will be disclosed publicly on the ACCC's register. This might provide valuable intelligence to competitors and other stakeholders.
Deal value thresholds are strikingly low, particularly for large acquirer groups. The regime also captures roll-up strategies, so a series of small deals could trigger the regime for organisations expanding their data centre presence. Even minority interests without control rights can require clearance.
The new merger clearance regime is complex and evolving – keep up to date with Ashurst's guide to Australian Merger Reforms and our updates on the latest developments and its application to private equity deals.
Data centre ownership restrictions for Government customers
Data centres servicing Australian Federal Government customers generally need to obtain/maintain certification under the Federal Government’s Hosting Certification Framework (HCF). Depending on the level of HCF certification held, this can allow the Australian Federal Government to either:
- specify ownership and control conditions; or
- impose financial penalties for certain changes in ownership or control – enabling Government customers to transition out of data centres.
HCF certification is beneficial as it allows the data centre to have a wider customer base and is also viewed as a recognised standard of security in the market.
Government customers can make up a significant proportion of the value of a data centre asset. Consequently, changes in ownership and control structures need to be carefully reviewed during the due diligence phase to confirm if any change of control approvals are required for a transaction.
Private sector customers, particularly those operating in critical infrastructure sectors, may include similar restrictions in their data centre contracts.
Many thanks to Alyssa Philips, Partner; Kylie Lane, Partner; and Claire Williams, Strategic Intelligence Manager for their insights and comments.
Want to know more?
- Data Centres – A modern digital asset class
- Australian Merger Reforms
- In with the new: the latest developments on the ACCC's new merger control regime
- PE deals in the spotlight - Five things you need to know about navigating the new ACCC merger regime
