Goodman Group shines among Australian property firms on data center push

By Aaditya GovindRao and Roushni Nair

(Reuters) – Goodman Group shares have been on a hot streak this year, shining among their Australian real estate peers as the artificial intelligence boom has driven frenetic demand for data centers.

“Hyperscalers,” or large-scale cloud service providers such as Amazon, Microsoft, and Meta, have spent billions on data centers to meet the growing demand for AI services.

Australia’s data center market, though nascent, has seen exceptional investment this year with Blackstone acquiring AirTrunk for A$24 billion ($14.91 billion) in September and developer NEXTDC bringing together nearly A$4.6 billion in equity and debt.

Goodman, the country’s largest real estate developer, counts the world’s largest hyperscalers as its clients, its website says, but the company did not confirm the identity of its clients in response to Reuters .

Its inventory, however, reflects increased demand for these specialized facilities, with data centers under construction making up 42% of its $12.8 billion ($7.96 billion) portfolio of projects under development ) at the end of September, from 37% at the end. of last year.

This has sent its stock flying 45.8% higher this year, positioning Goodman for its best performance since 2006. It is also the highest on the Australian real estate index.

The higher exposure to developing data centers makes the market more comfortable paying a higher multiple for the business, said John Lockton, head of investment strategy at Sandstone Insights.

“Investments in data centers continue to see momentum… We expect this environment to continue to support Goodman – The CAPEX outlook for hyperscalers implies continued growth for FY25.”

The consensus is divided on whether the growth of Goodman’s shares can continue. Some factions of the market have highlighted that the interest of investors in the stocks centered in the data center has begun to cool as the evaluations are rich.

They drew caution from owner DigiCo Infrastructure REIT’s initial public offering this month, where it raised A$2 billion, but the stock fell 9% on debut.

“We think Goodman’s shares are expensive at current prices … we are more cautious to assume a maintainable excess return from the long-term DC investment,” said Winky Yingqi Tan, a Morningstar analyst focused on REITs.

Tan also pointed to risks of data center obsolescence leading to capital-intensive upgrades, and rivals adding more supply, as factors that could erode Goodman’s returns over time.

Lockton, however, remains optimistic about Goodman’s prospects. He praises his existing pipeline, and access to land with an energy supply that can be converted into data centers, which rivals have pointed out as difficult to obtain.

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