Data centre boom lifts Goodman Group with $6bn of developments underway

The company is using its valuable land bank to get the jump on rivals and expand in the hot data centre industry.

Artists impression of a proposed Goodman Group data centre development in Sydney.

Industrial property powerhouse Goodman Group has locked in more power for a new wave of data centres being developed globally and flagged it could end up operating some facilities as demand surges on the back of the AI revolution.

The market for data centres has been reset by massive investments, led by Blackstone and the Canada Pension Plan Investment Board buying Sydney-headquartered AirTrunk, and the Goodman Group has shifted its business model to develop the massive complexes around the world.

The company is expanding its data centre offering after a steady first quarter in which it started on new data centres in Europe and Asia, with its workbook in the area at close to $6bn as the industry races to meet demand from big companies.

Goodman Group has emerged as one of the largest data centres players in the country — as part of its broader near $80bn network of global properties — and is using its existing network of industrial land as an advantage.

Other players — notably HMC Capital which bought the local arm of the Global Switch business for $1.9bn — have been buying existing sites and then seeking to expand them as they promote new funds in the area.

In a sign of where Goodman is headed, chief executive Greg Goodman said data centres would end up being built next to large industrial complexes in areas like Western Sydney, where there is a scramble for suitable land.

Mr Goodman flagged the group would operate some of the data centres itself where its partners wanted, but it would also work with large hyper-scale groups which wanted to run space themselves.

Goodman Group boss Greg Goodman. Picture: John Feder

The group also called out its focus on large-scale logistics developments, alongside data centre opportunities, both of which are supported by the structural drivers of the digital economy.

“Customer demand across our industrial portfolio remains moderate given the impact of lower global growth. However, our customers continue to enhance their supply chains and boost productivity through more efficient and scalable warehousing and distribution solutions,“ Mr Goodman said.

“We expect the underlying property fundamentals of our assets to remain strong, supported by low vacancy rates and minimal new supply, as developers of industrial have reduced their activity in the market,” he added.

Many rivals have found it hard to pull together enough capital to build large warehouses and some have slowed down their development schemes.

Goodman said it was orienting its development workbook towards data centres and higher intensity use outcomes, with a number of additional starts expected in 2025.

Mr Goodman said that while data centres were growing as a portion of the company’s global workbook it was also busy on the industrial front with about $7bn of work in Australia, North America and also Japan. Those markets, where land supply was constrained, were strong, and would be active over the next three years, he said.

The company is planning more data centres which will be turnkey projects where it could also operate them. This will provide big companies with access to data storage at a time when many operators are flat out.

Mr Goodman said where operators were stretched, being able to operate and develop data centres was the group’s competitive advantage as it could provide an operating solution.

The group would put partnerships in place for operating data centres which would be backed by big infrastructure investors and these would offer operational returns, which are higher than on traditional property funds.

But, Goodman will also look to work with the large hyper-scale operators which already dominate the industry where it can partner with them in order to get data centres up and running.

The surge in data centres is also spilling over to traditional industrial property, Mr Goodman said, citing billionaire Ian Malouf’s sale of a $353m parcel of land in Sydney’s Eastern Creek to ASX-listed NextDC.

Mr Goodman said industrial land in western Sydney was getting squeezed and big companies were also demanding more modern facilities. “You’ll find that our industrial starts on a stand-alone basis will be a lot larger,” he said.

At the end of September, Goodman had $12.8bn of development work in progress across 74 projects, with data centres making up 42 per cent of this work.

The group had 4.9 per cent like-for-like net property income growth on properties in its partnerships and occupancy was at 97.4 per cent.

Goodman Group stuck to its forecast for fiscal 2025 operating earnings per share growth of 9 per cent.

Citi analysts said the company expects to see substantial commencements in 2025, which will fuel the medium to long term growth outlook. “Demand for data centres continues to grow and Goodman remains well positioned to support this,” Citi said.

Citi said it remains optimistic on the medium to long term growth outlook for Goodman predominantly driven by a large 5GW data centre pipeline and stable industrial portfolio which is about 20 per cent under rented.

“Data centres are expected to represent an increasing proportion of both work in progress and the total property portfolio for the Group,” Citi said.

Goodman Group shares bumped up 9c to $36.39 in midday trade.