Australia (Commonwealth)_ Goodman Group (GMG.AX) has emerged as a standout performer among Australia’s real estate companies this year, driven by the growing demand for data centres fueled by the surge in artificial intelligence (AI) applications. The Australian property developer has experienced a remarkable rise in its stock value, reflecting the sector’s shift toward accommodating large-scale digital infrastructure.
The rise of AI technologies has spurred a surge in investments by global hyperscalers—large-scale cloud service providers such as Amazon (AMZN.O), Microsoft (MSFT.O), and Meta (META.O). These tech giants have committed billions of dollars to constructing data centres capable of meeting the escalating demands of AI services. Australia’s data center market, although still in its early stages, has witnessed significant investment activity this year. Notable examples include Blackstone’s (BX.N) acquisition of AirTrunk for A$24 billion ($14.91 billion) in September and NEXTDC’s (NXT.AX) successful equity and debt-raising efforts amounting to nearly A$4.6 billion.
As the country’s largest property developer, Goodman Group has positioned itself at the forefront of this transformation. While the company has refrained from disclosing the identities of its clientele, its website highlights its collaboration with the world’s leading hyperscalers. This strategic focus is evident in Goodman’s development portfolio, where data centres under construction constituted 42% of its A$12.8 billion ($7.96 billion) pipeline at the end of September, an increase from 37% at the end of last year. This emphasis on data centre projects underscores the heightened demand for specialized facilities within the sector.
Goodman’s stock has surged by 45.8% this year, marking its best performance since 2006 and cementing its position as the top performer on the Australian real estate index (.AXRE). John Lockton, head of investment strategy at Sandstone Insights, attributed this success to Goodman’s strong exposure to data centres in its development portfolio. “Higher exposure to data centres in development makes the market more comfortable paying a higher multiple for the business,” Lockton explained. He added that continued momentum in data centre investments, coupled with capital expenditure plans by hyperscalers, is expected to support Goodman’s growth into FY25.
Despite the optimism, opinions remain divided about the sustainability of Goodman’s stock performance. Some market observers have expressed concerns about the valuations of data-centre-focused stocks, which they believe have become inflated. These concerns were underscored by the initial public offering of DigiCo Infrastructure REIT (DGT.AX) earlier this month, which raised A$2 billion but experienced a 9% drop in stock value upon debut.
Winky Yingqi Tan, a Morningstar analyst specializing in real estate investment trusts (REITs), noted that Goodman’s securities appear overvalued at current prices. She also cautioned against assuming sustainable excess returns from data centre investments in the long term. Tan highlighted potential risks such as the obsolescence of data centres, which may necessitate costly upgrades, and the prospect of increased competition as rivals expand supply.
In contrast, Lockton remains optimistic about Goodman’s future. He praised the company’s robust pipeline and its access to land with adequate power supply—a critical resource for data centre construction—as significant competitive advantages. “Access to land with power supply that can be converted to data centres is challenging for competitors,” Lockton noted, emphasizing Goodman’s strategic positioning in this regard.
As the data centre sector continues to evolve, Goodman Group’s strategic initiatives and market positioning provide it with a strong foundation to capitalize on emerging opportunities. However, the long-term outlook will depend on its ability to navigate challenges such as valuation concerns, technological advancements, and competitive pressures. For investors, the company’s performance underscores the transformative impact of AI-driven demand on the real estate landscape while also serving as a reminder of the complexities associated with this rapidly growing market.
