Labor's suburban data centre ban: what it means for ASX stocks

The Albanese government plans to ban AI data centres near homes and recreational facilities, and to force new facilities onto renewable energy or risk losing power, according to the AFR. Draft laws are due for consultation before year end. We think it's the right call.

It follows months of backlash. We're based at Macquarie University, next door to the Macquarie Park data centres, and we're launching Australia's first data centre ETF on the ASX on 10 November, so we've watched this closely.

Data centres have been in the suburbs for ages

The old data centres could go almost anywhere: they used little power and made little noise, pollution or waste heat. AI chips are far bigger and hungrier, so AI data centres now resemble factories or refineries, with more heat, noise and grid demand. They suit a residential street about as well as an oil refinery does.

The push into the suburbs comes from big tech tenants wanting 99.999% uptime, which means plugging into reliable urban grids. That must be balanced against the interests of the people living next door.

Data centres are Australia's AI opportunity

The stakes are high. Data centres are one of the few ways Australia can capture a slice of the AI boom: we have no leading chipmaker or software platform, but we do build world-class property vehicles.

Thanks to the geographical proximity to Asia and with strong data laws, Australia is the world's second largest destination for data centre investment after the US. Hyperscalers need local partners to serve the regional demand.

ASX data centre stocks: GMG, NXT, DGT, CIP, MAQ

The listed names have all been hammered this year, partly on lost social licence and partly on rising rates, since they often trade as bond proxies. As growth optimism retreats, we think they're starting to look cheap.

Goodman Group (GMG)

Goodman is the most obvious play. Formally a REIT, it behaves more like a developer and fund manager, building to spec and selling to its own funds or the hyperscalers. About 75% of its development work in progress is data centres, backed by investors like GIC and CPP and by relationships with hyperscalers like Amazon, who strongly prefer proven partners. It bought land and booked power early, which now takes years of permitting, and yields on cost look set for 9–11%. The blemish is Lane Cove.

NextDC (NXT)

NextDC is the public face of community anger. Residents blocked works to carry 66kV lines to its M3 centre, which sits about 15 metres from homes, and Jemena doesn't expect to restart before February 2027. NextDC pulled about $140 million of M3 contracts from FY27 guidance and the shares fell almost 42% in a day. It's the purest exposure, owning its land and assets on its own balance sheet, but it now needs an engineering or political breakthrough to save its backlog.

DigiCo Infrastructure REIT (DGT)

DigiCo's SYD1 in Ultimo signed a 15-year, 71MW contract in October, reportedly with Anthropic, taking the 88MW site to 100% contracted and lifting its Australian WALE from about three years to more than 10. DigiCo has targeted a ~15% yield on cost, and as a brownfield upgrade SYD1 looks well insulated from the ban.

The market likes the structure less. HMC Capital, as responsible entity, takes 1% of gross asset value a year and 15% of first-year gross rent on new tenants. Its election to take cash from July cuts against alignment, fuelling worries that gains accrue to HMC rather than DigiCo holders.

Centuria Industrial REIT (CIP)

Australia's largest pure-play industrial REIT owns 83 assets worth $3.9 billion. FY26 FFO rose 4% to 18.2 cents, re-leasing spreads averaged 30% and the portfolio is about 17% under-rented; FY27 guidance is up to 5.5% FFO growth. Yet units trade around 25% below NTA of $4.01, even though CIP sold $200 million of assets at a 17% premium to book. Gearing is a comfortable 34.9%.

Its data centres include Telstra's Clayton centre on a 30-year lease and Wellcamp in Queensland, with more than 250MW of potential conversions identified. That's where the ban bites: the thesis relies on urban infill land, including a new Yarraville site right beside NextDC's flashpoint. But if conversions stall, investors still own a discounted, growing industrial REIT. The data centre upside is close to a free option.

Macquarie Technology Group (MAQ)

Macquarie Technology is the least pure play: data centres were $87 million of its $390 million FY26 revenue. But that business grew EBITDA 9.3% to $400 million, about a third of the group, and already serves two of the big three hyperscalers plus 42% of the federal government.

Crucially, it chose land with no social licence problem from the start: the Macquarie Park technology precinct, among offices and research facilities rather than homes. IC3 SuperWest has full power secured and is on time and on budget, and a new site supports a proposed ~200MW campus. MAQ looks the least exposed to the ban.

Conclusion: balance, not denial

There's no point sugar-coating it: AI data centres will only get bigger, hotter and more problematic for suburban areas. Labor's ban strikes a sensible balance, protecting residents while leaving room for Australia to share in the AI boom, provided the industry builds where the land, power and renewables are.

The winners will be those with contracted brownfield sites, hyperscaler relationships or land away from homes. After this year's sell-off, several look like good value.