According to the Australian Bureau of Statistics’ latest data release at the end of November, total new private capital expenditure reached the highest level in more than a decade, adjusted for price changes. The 7% year-on-year growth was largely driven by a surge in data centre spending.

Why it matters: Similarly, in the United States, data centre investments have become a growth engine of gross domestic product.

  • Goodman (ASX: GMG) plans to commence an additional 0.2 gigawatts of data centre development by the end of fiscal 2026, bringing the active data centre pipeline to 0.5 gigawatts. On completion, the company expects these projects to be worth approximately $13 billion.
  • We expect data centre development and leasing to contribute roughly one-fifth of Goodman’s earnings in the medium term, from less than 10% currently. However, returns on invested capital could fall as global competition intensifies.

The bottom line: We maintain our fair value estimate for narrow-moat Goodman at $29 per security. Across our sector coverage, Goodman is one of the worst performers this year, starkly juxtaposing its share price performance in 2023/24.

  • Securities have recently returned to 3-star territory, with building concerns of a potential artificial intelligence bubble and data centre overspending.

Big picture: Capital investors are piling into data centres, but we are more cautious. The current data centre boom resembles an upswing phase of a real estate cycle, which differs from other cycles as supply could take years to adjust to demand.

  • The time lag between project initiation and building completion could make extrapolating current demand growth dangerous. While investment returns seem appealing and tenant demand is robust now, this may not be the case by the time a new development finishes in several years.

Goodman has a growing data centre pipeline in fiscal 2026

Goodman operates an own-develop-manage business model. A typical cycle starts from acquiring a site and developing it. Completed projects are either sold or retained in one of Goodman’s funds or partnerships. Goodman typically retains minority stakes in the investment vehicles and continues to manage the sites after completion.

The group’s development-led strategy fuels growth of its asset base. As of June 2025, Goodman’s total assets under management reached $86 billion, tripling the asset base of 10 years ago. Its development pipeline has also experienced significant expansion, growing to $13 billion in fiscal 2025, compared with fiscal 2014’s $3 billion. With a large development pipeline and an active development strategy, we expect AUM to enjoy high-single-digit percentage growth over the medium term, and the management segment to contribute almost 40% of group’s midcycle operating earnings.

The pivot toward larger-scale, higher-value projects not only expands pipeline size, but also increases project lead time. Today, an average development project takes 24 months to complete, up from 17 months in 2020. This reflects a higher percentage of data centre projects, an area of focus for Goodman in the short to medium term.

Despite larger developments, capital management has remained prudent. Most development projects have capital partners involved, with high tenancy precommitment and long leases secured. The company has been rotating properties into its funds or disposing of its assets to external third parties. By doing so, Goodman is redeploying capital to new opportunities, and maintaining low leverage on its own balance sheet.

Goodman prefers urban infill locations in core gateway cities, and this adds to the appeal of its portfolio. These locations—typically in established and densely populated neighborhoods and close to end-consumer markets—are supply-constrained. Good locations, combined with structural tailwinds like e-commerce and cloud technology booms, are likely to underpin solid rent growth in the medium term.

Bulls say

  • Structural tailwinds, such as rising e-commerce, supply chain transformation, and cloud technology are likely to continue having a significant bearing on industrial property demand.
  • Goodman’s large development pipeline is supported by its balance sheet capacity and the capability to attract capital partners.
  • Goodman’s investment vehicles are gaining investor inflows given their scale, strong track records, management expertise, and the ability to secure leases prior to development completion.

Bears say

  • Industrial property has benefited from several years of tight supply, and rents have increased dramatically. There is a limit to how much more rents can grow, as tenants may not be able to keep paying higher rents if productivity is not going up at the same pace.
  • Rival REITs are competing to acquire industrial property and establish funds management businesses.
  • Goodman’s data centre developments hinge on its ability to secure infrastructure and power. Regulatory approvals and environmental policy are a wild card.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.