Deloitte puts $141 billion of data centre work inside a record $1.39 trillion pipeline

A record pipeline

Deloitte Access Economics' Investment Monitor puts the total pipeline at a record $1.39 trillion, with data centre projects up 36% over the past year to $141 billion.

The value of projects under construction is expected to be near $870 billion in 2027, more than double the peak of the mining boom in 2012. Deloitte director Sheraan Underwood said the economy has limited capacity to absorb the extra demand. "This boom is happening close to our major cities, so data centres are competing directly with housing and infrastructure for workers and materials," he said. "There's also less room to absorb it". The geography differs from the last boom: data centre investment leads in New South Wales, Queensland and Victoria, while the mining rush sent most of its money to resource-heavy states.

The constraint is not the money. It is the workers and materials.

The bank's arithmetic

The Reserve Bank of Australia raised the cash rate by 25 basis points to 4.85% on Tuesday. That is the highest level in 18 years. Six board members backed the move and three wanted to hold at 4.60%.

The board named AI investment among the forces pushing prices up. "AI-related investment is driving rapid growth in prices for technology-related goods," it said in its statement. Governor Michele Bullock said demand for AI investment is outstripping savings, which is lifting what the bank calls the neutral interest rate. She warned against expecting the payoff to bring relief. "If people think that productivity improvements will help to lower inflation and keep interest rates low, that's not necessarily the case," she said. The bank also said some of the inflationary impact was being offset by falling real incomes and weakness in the housing market. It estimated that more than two-thirds of data centre investment would flow offshore.

The construction bill lands locally. Much of the equipment does not.

A boom that bills first

Underwood said labour is the main pinch point. "Competition for these workers will add to costs and raise the risk that projects are delayed, scaled back or take longer to deliver," he said.

He described a mismatch in timing. "The construction and inflation pressures are arriving now, while the productivity dividend may take much longer to emerge," he said. Deloitte also questions the size of that dividend: much of the technology is imported, and relatively few workers are needed to operate finished facilities. Official figures already show the demand. Australian Bureau of Statistics data shows strong business spending, especially on data centre construction. That adds to demand for materials, construction labour and skilled electrical and IT workers.

The timing is the open question. Exactly when the AI boom will have a positive impact on inflation remains highly uncertain.

What happens next

Treasurer Jim Chalmers said the mid-year fiscal update will include the data centre boom. The RBA does not expect inflation to reach the top of its 2% to 3% target range until late 2027. That is about three quarters later than its previous forecast. The board still expects business investment to grow faster in the near term, including investment in data centres.

Chalmers said the decision was widely expected but still hard for households and businesses. "It's difficult news for many Australians who are already paying a hefty price for circumstances outside their control," he said.