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Highlights
- Goodman Group's stock rises over 45% in 2024, its best performance since 2006.
- Data centres now make up 42% of Goodman’s AU$12.8 billion development pipeline.
- Australia's data-centre market sees booming investment, led by global hyperscalers.
Goodman Group (ASX:GMG) has emerged as a standout performer in Australia’s real estate sector, fueled by the surging demand for data centres amid the artificial intelligence (AI) boom. The company’s stock soared 45.8% this year, positioning it as the top performer on the Australian real estate index and marking its best annual gain since 2006.
Global hyperscalers—large-scale cloud service providers such as Amazon, Microsoft, and Meta—have been pouring billions into data centres to support the rapid growth of AI services. While Goodman has not disclosed specific customers, its development portfolio reflects the trend, with data centres accounting for 42% of its AU$12.8 billion ($7.96 billion) project pipeline as of September, up from 37% at the end of 2022.
AI Boom Drives Data Centre Investments
Australia’s nascent data-centre market experienced unprecedented investment in 2023. Highlights include Blackstone’s AU$24 billion acquisition of AirTrunk in September and developer NEXTDC raising nearly AU$4.6 billion through equity and debt. Goodman, the nation’s largest property developer, is well-positioned to capitalize on this momentum.
“Higher exposure to data centres in development makes the market more comfortable paying a higher multiple for the business,” said John Lockton, head of investment strategy at Sandstone Insights. He added that continued investments in data centres and an optimistic capital expenditure outlook for FY25 are likely to sustain Goodman’s growth trajectory.
Mixed Outlook Amid Valuation Concerns
Despite Goodman's strong performance, market sentiment is divided on its future prospects. Some analysts warn that soaring valuations in the data-centre sector could limit further upside.
Morningstar analyst Winky Yingqi Tan expressed caution, noting that investor enthusiasm for data-centre-focused stocks has started to cool. She pointed to DigiCo Infrastructure REIT’s disappointing debut this month, where the AU$2 billion IPO saw the stock fall 9% on its first trading day.
“We think Goodman’s securities are expensive at current prices. We are more cautious about assuming maintainable excess returns from data-centre investment in the longer term,” Tan said. She also highlighted risks such as obsolescence in data-centre infrastructure, potential capital-intensive upgrades, and increased competition from new supply.
Strategic Advantage Amid Challenges
Lockton, however, remains optimistic about Goodman’s long-term prospects. He highlighted the company’s robust pipeline and access to critical land with power supply as key competitive advantages. Rivals have flagged the scarcity of such land as a significant barrier to entry.
