Data centres: construction’s next boom, and its next capacity test
Massive pipeline lands on an industry already under strain.
CreditorWatch’s August Business Risk Index results reveal Australia's data centre boom is quickly becoming a construction story as much as a technology story. Australia is now the world's third-largest destination for data centre investment, with a development pipeline out to 2030 worth more than $150 billion.
New South Wales and Victoria at this stage account for some 91% of the future pipeline according to CommBank, concentrating much of the resulting demand for land and labour in two of the country's busiest construction markets.
Key Insights
- The AI boom along with energy price increases and earlier interest rate rises is creating a two-speed credit cycle in the construction industry.
- Insolvencies stepped sharply higher in August, with construction first-time insolvencies jumping to 868 and total first-time insolvencies rising to 1,834.
- Construction's 6.5% arrears rate over the past 12 months (up 13.3%) and relatively high default and insolvency rates are concentrated in a residential segment that the boom won't rescue.
- The real risk is the boom stretches residential capacity and credit as premium data centre work pressures prices and siphons scarce labour away from already-stressed housing construction.
- Elevated trade payment defaults are the signal to watch - four or more lift a business's insolvency risk to around 19%, versus under 1% for those with none. —Residential construction defaults are currently more than three times the national average.
- Geopolitical pressure and the AI boom are equally creating more diverse performance across the entire economy and will likely contribute to a further tightening in credit conditions.
- The additional input cost increases and inflationary pressures are likely to see the RBA and US Fed raise interest rates again in September.
Read the full report by Michael Pollack at CreditorWatch below.