The Rise of Modular Data Centres
Written By
Associate
Australia
As an associate in the Sydney Real Estate team, I have been involved in a wide range of property developments, acquisitions, disposals and disputes within most Australian jurisdictions.
Senior Associate
Australia
I am a Senior Associate in the Real Estate team of our Sydney office, with over 15 years' experience advising domestic and international clients on real estate transactions in Australia and Ireland.
The Australian building and development sectors are undergoing significant transformation, driven by the rise of pre-fabricated, modular construction.
Cloud computing along with the need for fast, scalable, mobile, cost-effective and disaster-resilient infrastructure is driving demand for modular data centre solutions that keep pace with data and technology industries.
- Traditional vs Modular Data Centres
The key differences between traditional and modular data centres are mobility, scalability, deployment speed, sustainability, cost and security.
| Traditional | Modular |
Mobility | Stationary and immobile. | Capable of being deployed and relocated to alternate locations with a level of ease. |
Scalability | Less scalable. | Highly scalable as businesses can expand or reduce the size with a level of ease. |
Deployment speed | Generally, a minimum timeframe of 18-24 months depending on the size of the project. | Generally, a timeframe of 3-6 months depending on the size of the project. |
Cost | AU$10-$25 million per megawatt of IT capacity. | AU$5-$15 million per megawatt of IT capacity. |
Security | Built-in security measures along with remote monitoring makes it easier for traditional data centres to manage security concerns. | Generally compact and self-contained when installed behind a secure barrier with surveillance. |
Maximum megawatt capacity | 1000 MW for extremely large data centres. Tech giants are in now discussion about data centres with gigawatt capacities. | 1.0 – 1.5 megawatts for all-in-one modular data centres. |
2. Government Investment
The Australian Department of Defence awarded several construction contracts to prefabricated providers to construct portable, containerised data systems for several local defence sites. In 2020, Australian-owned Datapod was awarded a AU$20 million contract to produce several modular data systems that can be rapidly deployed by sea, air or road for use by the Australian Defence Force. In a press release, Former Minister for Defence Linda Reynolds stated that modular data centres are preferred for their scalability which can adapt to emerging technologies.
3. Private Investment
Consistent demand for data storage and processing services makes data centres an attractive investment opportunity for private equity firms, institutional investors and real estate developers.
Data centres are more costly and complex to develop than traditional real estate assets, however, industry reporting indicates that data centres generally provide returns on investment that are significantly higher than standard, industrial estates.
Modular data centres have become increasingly popular in the market due to their scalability, reduced construction costs and shorter lead times. Recently, companies such as Telstra, IBM, Microsoft, Google, Baidu, Alibaba and Tencent have begun investing in modular data centre projects.
4. Regional Market
In Australia, demand for prefabricated data centres remains steady within regional energy, mining and resources markets that require prompt deployment, installation and scaling of weatherproof builds. This was seen in 2024, when the remote Pilbara region of Western Australia, received a NEXTDC modular data centre, called NE1 Newman, which increased connectivity for edge computing used in connection with regional mine sites.
5. Advantages of Modular Construction
5.1. Construction Speed
Depending on design complexity, modular data centres can be delivered and established within only weeks or months. Shorter lead times allow developers to bring projects to market quickly prompting faster returns on investment. In contrast, traditional data centres generally take from 18 to 24 months from development approval to completion.
5.2. Planning Requirements
Planning requirements regulating modular data centres generally align with requirements associated with conventional builds, however, the plans and specifications are generally less complex and readily available from the manufacturer. In some circumstances, regulatory authorises will waive the inspection requirements associated with conventional builds where manufacturers are able to verify that the product has been tested and approved prior to deployment.
However, many legal ambiguities surround modular data centres. Generally, planning approval is required for the installation of modular data centres.
Litigation relating to modular data centres has been limited, though NSW prefabricated house disputes have provided some guidance. The court in Ogilvie v Rovest Holdings Pty Ltd [2023] NSWLEC 17 found that, under planning law, prefabricated, modular units were still considered to be buildings requiring development consent. It is currently unclear as to whether the same principles would apply for modular data centres, however, local planning controls will vary between jurisdictions.
5.3. Quality Control
Prefabrication allows for building components to be created and assembled in controlled environments without onsite challenges and weather conditions that can impact the quality of the build and delay project timelines.
5.4. Workplace Health and Safety
Factories provide a controlled environment that are generally safer than construction site as they are generally able to mitigate risks associated with onsite building and hazardous weather conditions.
5.5. Cost Efficiency
Manufacturing modules in a controlled factory environment significantly reduces labour and materials costs while minimising unforeseen on-site construction expenses and common delays (e.g. inclement weather). Additionally, modular data centres will generally be constructed with little to no variations from the pre-determined contract price. Furthermore, modular data centres require lower initial capital expenditure as scalability offerings allow businesses to expand incrementally, avoiding substantial upfront costs associated with traditional builds.
5.6. Financial Benefits
The average construction cost for traditional data centres is estimated to be AU$10-$25 million per megawatt of IT capacity.
Economies of scale from the standardisation and prefabrication of modular data centres has the capacity to lower this cost to AU$5-$15 million per megawatt of IT capacity.
5.7. Depreciation
Modular data centres can be depreciated separately to any other buildings or structures located on the same site. Additionally, they can be moved or relocated from one location to another with prior depreciation recognised and remaining asset value intact.
6. Limitations of Modular Construction
6.1. Customisation
Modular data centres may not suit the needs of organisations with predictable long-term needs, particularly where customised infrastructure is required.
6.2. Regulatory Benefits
At the date of publication, the Australian Government offers no grants, incentives or schemes for those involved in the construction of modular data centres. Existing planning reforms and regulatory benefits are solely available to data centres that qualify as a ‘state significant development’ under the NSW State Environmental Planning Policy (Planning Systems) 2021.
Conclusion
Prefabricated and modular construction has changed the game in Australia’s building and development sectors. Streamlining processes and adopting modern manufacturing methods can work to reduce costs, minimise construction timelines and ensure quality of production without any significant compromise.
