Goodman Group bets on the AI wave and hints it could not only build but operate data centres

Industrial property group Goodman already builds data centres worldwide and now, thanks to AI demand, is considering operating them too.

Industrial property powerhouse the Goodman Group has flagged the next stage of its business will lead it to build and potentially operate massive data centres around the world, to capitalise on the surge of AI.

The $38bn group has benefited from the switch to e-commerce and flagged that the next revolution would be just as significant, because data centres already makes up 30 per cent of the projects it is building around the world.

Chief executive Greg Goodman said that the requirement for new centres was set to explode, particularly in the Asia-Pacific as data was migrated to where it is developed.

“Significant growth in data storage, and AI in particular, is driving data centre demand which is now approximately 30 per cent of our $13bn development workbook, and importantly we have a pipeline of over 3GW which has significant value over time,” he said.

The group is moving beyond just developing massive warehouses and could also run the data centres, as big companies were asking it to pick this up.

“I think as our business progresses over time in that space, there is the opportunity to have an infrastructure business in data centres, if we think it makes sense financially, to do so,” Mr Goodman said.

“We‘ve got a big pipeline, we’ve got sites around the world now,” he said, noting they had been assembled over the last five to seven years and were now ready to go.

Goodman has been driven by customer demand for goods and is now seeking to meet the demand for data. “You can imagine with the generative AI, the demand that has been put on data storage and the connectivity with what consumers and businesses will require,” Mr Goodman said.

The company would set up new partnerships with global institutions in the hot area if it started running the centres, adding to its funds empire which is already at $81bn. Returns from running funds is helping to defy the economic slowdown which is hitting parts of the property market.

“Despite the macro uncertainty, structural drivers remain sound, driven by the digital economy, the need for more efficient and sustainable assets and limited supply in our markets,” Mr Goodman said.

The company is focused on cities in Australia, Asia, Europe and the US. “These locations are also providing value-add opportunities, as we see increased competition for industrial sites from other uses such as data centres and potential residential rezoning,” Mr Goodman said.

The company’s mainstay – warehouse properties in major global cities – is performing strongly as vacancy is very low, particularly in Sydney, and the company generated a $1.78bn full-year operating profit which was ahead of expectations. However, it gave its usual conservative guidance, which investors expect it to beat – as its shares had risen by $1.13 to $20.88.

Mr Goodman also addressed the housing crisis, saying the company had a land bank of sites, particularly around Sydney, which could accommodate more than 20,000 apartments. But he said the planning system needed to move faster to get people into homes – backing calls by outspoken fellow billionaire Harry Triguboff.

Mr Goodman said the group was meeting with planning authorities and, short term, was likely to convert some business parks into build-to-rent towers. The company will rezone and prepare the sites but leave developing and running the complexes to specialist operators like US group Greystar.

The group lifted its full year operating profit by 17 per cent to $1.78bn and is a standout in the real estate investment sector which has been hit by writedowns as higher interest rates have slammed balance sheets.

Mr Goodman said that “commodity” warehouses in undesirable locations would come under pressure, mainly in offshore markets, and businesses that had focused on just collecting assets would also be impacted.

Goodman sold down billions of dollars worth of secondary property during the boom times and is now well positioned as the market turns, as it has available liquidity of $3.1bn.

The company’s operating earnings per security came in at 94.3c, which is a 16 per cent rise on the previous year. The fiscal 2024 forecast operating EPS is 102.9c, up 9 per cent on last year.

The statutory profit of $1.56bn included the group’s share of valuation gains, non-cash items and derivative instruments.

Mr Goodman said the company was well positioned this financial year and was focused on the digital economy and high barrier to entry markets, which is supporting the positive outlook for occupancy, rents and developments.

The group is taking on an increasingly complicated range of activities including multi-level industrial sites as well as large data centre developments.

Goodman forecast that it would deliver growth despite the risks associated with current market volatility but its forecast distribution was flat at 30c per security, as the group ploughs further into developments and new funds.

Citi analysts said Goodman’s earnings came in ahead of guidance of 15 per cent growth but in line with market expectations. They said that the guidance was below market expectations.

“Goodman has a history of being conservative on initial guidance and we see this time as no different, with more reason to be conservative given an uncertain asset value environment,” they said.

Goodman’s funds empire hit $81bn but the company had lower net acquisition and development, and smaller revaluation gains. “We expect the stock is likely to react strongly to the result, especially given the strong rental growth outlook,” Citi said.

Originally published as Goodman Group bets on the AI wave and hints it could not only build but operate data centres