Policymakers are focused on the electricity and water impacts of data centres, but the labour market implications of the build-out are set to have an equally big impact on the economy.

Data centre investment in Australia is surging; despite a drop in investment flows last quarter, that momentum is expected to continue. According to AEMO’s Electricity Statement of Opportunities released in August, there are 225 data centre development projects, though that number is probably higher and growing quickly.

While not all of those projects will reach the production stage, data centre investment has quickly become the Australian Information, Media and Telecommunications sector’s mining boom, with capital expenditure up around 190% from pre-ChatGPT release levels to $24.3 billion over the 2026 financial year.

According to ABS data, roughly 45% of that capital expenditure is attributed to buildings and structures, up 57% from pre-ChatGPT levels.

That expansion doesn’t happen in a vacuum. It demands resources, and while these capital investments generally have a net positive economic impact, ‘crowding-out’ of other economic activity does occur because resources are scarce.

As a result of growing demand, Australia’s construction industry is under pressure to secure enough labour to meet requirements for more data centres while concurrently trying to address a dwelling shortage that has continued to worsen affordability.  With limited ability to draw workers from other industries, residential and industrial construction firms are competing against each other.

The construction industry has faced a labour problem for some time, and this new investment boom will likely compound it.

Several construction occupations have been in continual shortage since 2021, when Jobs and Skills Australia began tracking occupation demand relative to supply. Of the 139 occupations identified nationally as being in persistent shortage, 51% are Technicians and Trades Workers, mostly in construction and engineering.

New builds are likely to have delays as skilled labour remains scarce across the industry.

When such a shortage persists over long periods, supply and demand dynamics take hold and prices rise. The sector has seen above-average 13% private-sector wage growth since ChatGPT was released in late 2022, despite a 4% decline in labour productivity over that period.

Part of the reason these workers have benefited from higher wages while productivity has declined is the specialised skills they possess. The skills construction workers possess aren’t easy to acquire, which naturally restricts labour mobility into the industry when demand is high.

As demand for data centre construction grows, construction firms will compete even more for limited skilled labour. That will likely mean higher wage offers from data centre construction firms with deep-pocketed customers more than willing to foot the bill.

For tradies, this will likely mean higher wages, but it will also draw labour away from residential construction, crowding out activity and reducing new dwelling supply.

Federal government labour market policies aren’t doing enough to close the construction gap. Photo: Hilary Wardhaugh/Getty Images

In the current market downturn, residential construction firms are struggling to pass costs on to customers, constraining home builders’ ability to pass on higher labour costs the way data centre construction firms can.

The solution here isn’t to stop data centre builds. While that might mean slightly more homes over the medium term, it will likely mean lower economic growth and less long-term prosperity.

The focus needs to be on securing a larger supply of skilled labour.

Infrastructure Australia expects a shortfall of 126,000 trade workers and labourers by the middle of next year, and Master Builders Australia expects a shortfall of 116,000 housing construction workers in 2030.

REA Group economist Luc Redman. Picture: realestate.com.au

Industry, think tanks and some policymakers have pointed out these problems for some time, with several proposed solutions. One has been upskilling workers, though currently this is difficult given the tightness of the labour market; this method also tends to have a lagged effect.

While a suite of policy changes will be required, the short term needs a more immediate solution, and the most optimal solution is to leverage our migration system.

Currently, Australia doesn’t prioritise skilled construction migrants enough in the visa system, with 2,500 temporary skilled visas granted in the 6 months to December 2025, less than the manufacturing sector despite having more applications.  Without a policy shift, the construction industry will continue competing for scarce talent.

Allowing more skilled construction labour into Australia will help reduce the pressures the industry is feeling. It will mean more activity, faster builds and the opportunity for Australia to both capture the positive impacts from the data centre builds while reducing the impacts on our housing sector.

Luc is an economist at REA Group.

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A landmark Brisbane office tower housing the global headquarters of Flight Centre and Virgin Australia is set to change hands for a whopping $255 million.

LDR Capital, the real estate investment arm of the Lederer Group, has exchanged contracts to acquire Southpoint at 275 Grey St, South Brisbane, in one of the city’s major commercial property transactions.

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The prime-grade office and retail tower occupies a prized position in the heart of South Bank and is the only prime-grade Brisbane office building with direct, integrated access to a train station.

It is also fully occupied, with a weighted average lease expiry of eight years.

ASX-listed Flight Centre Travel Group and Virgin Australia have their global headquarters in the tower, while Flight Centre has committed to a new 10-year lease from October.

Below the offices, a retail centre is anchored by Woolworths Metro, McDonald’s and TerryWhite Chemmart on long-term leases.

The deal comes as available office space in the precinct becomes increasingly scarce.

Southpoint, at the corner of Grey and Vulture Streets in Southbank has sold for $255m. Picture: Annette Dew.

LDR Capital managing director Myles Brooks-Garrett said vacancy in the South Bank office market was sitting at just 0.9 per cent and had averaged 2.8 per cent over the past three years.

“Product like this is rarely traded and is typically reserved for the major REITs, superannuation funds and offshore institutions,” he said.

Southpoint will be held through the new LDR Grey Street Fund, with Lederer Group committing at least 25 per cent of its equity and becoming its largest investor.

The building is one of the most prominent in Brisbane. Picture: Supplied

Lederer Group founder and chairman Paul Lederer described Southpoint as an “irreplaceable building” in a precinct where the group says no comparable new supply can be built.

The group is acquiring the property at an 8 per cent capitalisation rate and says the purchase price represents at least a 35 per cent discount to replacement cost.

The fund is targeting an average annual distribution yield of 8.2 per cent over an initial five-year term and a 16 per cent internal rate of return, post-fees and pre-tax.

It is LDR Capital’s second wholesale fund, with the group now managing about $1.6 billion in real estate.

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Property funds manager Charter Hall is again expanding its retail property holdings, picking up Melbourne’s well-known Tooronga Village shopping centre for $79m.

The company has identified convenience retail as a primary growth area, and the sector’s resilience is boosting its performance even as larger malls are under pressure.

The trend, which emerged ahead of the pandemic, is solidifying as consumers focus on everyday needs and shift away from discretionary spending. At the same time, large supermarket chains Woolworths and Coles are rolling out fewer centres because of rising construction costs, even though population growth is increasing.

The company is buying for its unlisted Charter Hall Convenience Retail Fund, which has attracted about $3bn of institutional backing and is targeting a $4.5bn-plus portfolio.

Charter Hall is buying the Melbourne asset from Newmark Capital, which acquired the centre from Stockland in 2019 for about $63.2m. Newmark sold five strata podium lots for $7m in 2021-22 and returned capital to investors at that time.

Newmark boosted the centre’s income and the sale is a strong result for investors.

The Tooronga Village deal will show a capitalisation rate of about 5.75 per cent. The move to expand the vehicle came as Charter Hall chief executive David Harrison nominated the sector as a key area for his business’s expansion.

Charter Hall is stepping up its property purchasing at a time when few others are in the market and many rival players are making bids contingent on raising capital to complete deals.

Tooronga Village is a 7724sq m neighbourhood centre anchored by Coles, alongside two mini-majors, 20 specialty stores, five kiosks, an ATM, car wash and extensive basement parking. It serves the blue-chip areas of Toorak, Malvern, Hawthorn, Kooyong and Glen Iris.

The off-market deal was negotiated by Tim McIntosh and Will Heffernan from Colliers, and Stonebridge Property Group’s Justin Dowers and Kevin Tong.

Mr McIntosh said the centre’s strong trading fundamentals and strategic positioning in Melbourne’s inner east attracted Charter Hall’s interest.

“Tooronga Village is anchored by a highly productive Coles supermarket, with the centre sales productivity above $17,000 per square metre, ranking the centre as one of the highest performing neighbourhoods in inner metropolitan Melbourne,” he said. “Assets of this calibre are tightly held and rarely traded, particularly within Melbourne’s inner eastern suburbs, making it a highly valuable investment proposition.”

Mr Dowers said the sale reflected the continued institutional demand for dominant convenience retail assets within affluent metropolitan catchments.

“High-quality neighbourhood shopping centres continue to attract significant investor interest, driven by strong population growth, resilient supermarket performance and limited incoming new supply,” he said.

Mr Dowers said the strong rental growth experienced across the neighbourhood shopping centre sector was driving substantial capital reweighting into convenience retail. This transaction alongside the recent sales of Burwood Brickworks and Coles and Aldi Kilmore amounted to more than $220m of Melbourne neighbourhood centre transactions in the past two months.

Charter Hall is separately buying Yeppoon Central shopping centre on the state’s Capricorn Coast from developer Laurence Lancini. The Woolworths-anchored subregional shopping centre is selling for more than $70m and will show a yield of about 6.5 per cent.

Charter Hall has been the top buyer of convenience retail assets this year and its purchases include $250m worth of centres in Queensland and NSW bought from Vicinity Centres.

Last year, it bought the Burwood One Shopping Centre in Melbourne for $210m and bought Southport Park from billionaire John Van Lieshout for $152.5m.

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