Melbourne cheaper than Sydney for data centre build

Turner & Townsend has found that Melbourne is cheaper than Sydney for data centre construction, with both cities ranking well below major Asian hubs including Tokyo, Hong Kong and Singapore in its latest global index.

The 2026 Data Centre Construction Index ranked Sydney 41st and Melbourne 45th out of 62 markets, with indicative construction costs of $10.74 per watt and $10.58 per watt respectively, based on a typical 60 MW design. Auckland ranked 17th at $12.69 per watt, making it the most expensive of the three Australia and New Zealand cities surveyed.

The research drew on more than 500 live or recently completed projects and a survey of more than 400 industry experts. It found global data centre construction costs continued to rise as AI-driven demand increased pressure on land, power, materials and labour.

Across Asia Pacific, Tokyo topped the global table for the fourth consecutive year at $18.28 per watt, followed by Osaka at $17.15. Singapore ranked fourth at $15.39 per watt, Hong Kong 14th at $12.97 and Jakarta 26th at $11.96.

The gap between Australia and these higher-cost hubs reflects differences in contractor depth, supply chains and project volumes, the index found. Sydney and Melbourne benefit from deeper supply chains, a larger pool of experienced contractors and a steady pipeline of projects, helping contain costs relative to some regional peers.

Cost pressures

Even so, the report said Australia should not be seen as a low-cost market, citing ongoing competition for suitable land and constraints on available power.

Power emerged as one of the main constraints globally. Among respondents, 56% identified it as a major obstacle to successful delivery, while 52% said utility connections typically take one to two years and 32% reported timeframes of more than two years.

Labour shortages also remained a major issue. The survey found 81% of respondents said skilled labour in their region was either moderately or highly constrained, while only 52% believed contractor capacity was manageable for now.

Inflation remained uneven across the sector. More than half of respondents, 52%, said they experienced cost increases above 6% in 2026, and about one in five reported inflation above 15%.

Looking ahead, respondents indicated some easing in cost pressures, though not a return to earlier market conditions. For 2027, 28% expect inflation to be between 1% and 5%, while 57% expect it to remain below 15%.

AI demand

The report linked much of the current construction activity to larger facilities being built for AI workloads. It said these projects require different delivery approaches, more technical specialists and contracting models that account for higher risks and tighter schedules.

Half of those surveyed expect data centres to make up most of their project pipeline next year. Specifically, 52% said most of their 2027 projects would be data centres supporting AI workloads.

Simon Kearney, Data Centre Lead, ANZ, at Turner & Townsend, said: "Fundamentally, on the back of strong economies, established supply chains and stable grid connections, Australia and New Zealand remain very attractive markets for investors. That said, each city is different.

"New Zealand's market is smaller, so there are fewer specialist contractors and less competition for work. Most major plant and equipment has to be shipped in over long distances, and strict design standards add cost. Skilled labour is also in short supply, which pushes rates up. That partly explains why Auckland is ranked 17th on this year's index.

"Sydney and Melbourne benefit from deeper supply chains, a larger pool of experienced contractors and a steady pipeline of projects, all of which helps control costs. That does not make Australia a low-cost option, though. Power constraints and competition for suitable land remain real pressures there too.

"As demand continues to accelerate, organisations that take a proactive approach to site selection, procurement and supply chain engagement will be best placed to manage delivery risk and bring capacity online faster."

Outside Asia Pacific, Zurich ranked third globally at $15.93 per watt, followed by Silicon Valley at $15.01 and Copenhagen at $14.41. Turner & Townsend said the concentration of high-cost markets in Europe and North America reflected the continued dominance of those regions, which account for around half of global data centres in North America and about a quarter in Europe.

At the other end of the ranking, Shanghai was the lowest-cost market in the index at $5.79 per watt, followed by Mumbai at $6.83 and Ho Chi Minh City at $8.32. Bogota and the UAE completed the bottom five at $9.13 and $9.20 respectively.

Paul Barry, Data Centre Construction Cost Index Lead at Turner & Townsend, said: "Over the decade since we first published our construction cost index, we have seen the data centre industry completely transformed, with capital expenditure on data centres now at US$800 billion per year and expected to reach US$1.8 trillion by 2050. AI's exponential demand for computing power, combined with cloud adoption and the growing importance of data and sovereign capacity, is driving data centre investment and development at unprecedented scale, reshaping the construction landscape.

"However, rising material and labour costs continue to create challenges globally, while access to power, specialist equipment and skills continues to create bottlenecks. Data centres are also subject to increasing scrutiny, with political and community consent essential to delivery. AI-driven demand for gigawatt-level power and liquid cooling for increased rack densities is driving the growth of larger-scale data centres, but shortages of skilled labour and the greater risks involved in delivering larger, more complex projects are creating a cost premium."