Melbourne is turning ‘rust-bucket’ suburbs into a thirsty, power-hungry billion-dollar data empire

Melbourne Water has warned it has received applications from new hyperscale data centers using large amounts of water to cool servers and that water demands “exceed those of almost all 30 non-residential customers” in the city.

In its 2026 water pricing presentation, the utility noted that this sudden and large demand was not taken into account in demand forecasts or spending planning.

The official said it would be “prudent” to collect “upfront capital contributions” from these new customers for any infrastructure upgrades so that the financial burden does not fall on the broader customer base.

The strain on the power grid is also expected to be serious. The Australian Energy Market Operator (AEMO) predicts that 8 per cent of Melbourne’s grid will be used by data centers by 2030, up from 2 per cent this year. AEMO predicts that 19 percent of the city’s energy consumption will come from data centers by 2050.

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Researcher Johanna Lim from the United States Research Center said the power-hungry nature of data centers was creating a big problem for Australia.

Lim said the grid can meet current demand, but as rapid expansion continues, capacity issues will begin to emerge. Avoiding energy constraints requires stronger coordination between utilities and data centers, as well as accelerating renewable energy projects, he said.

But data centers can also help stabilize the grid by absorbing excess renewable energy during hours of the day when supply exceeds demand, he said.

Data from real estate firm Cushman & Wakefield shows that as of June Sydney had more than double Melbourne’s current capacity. But for the first time, Melbourne has more planned capacity for projects where construction has not yet started.

Despite stronger growth, Cushman & Wakefield said Melbourne was unlikely to become the largest data center market in Australia due to Sydney’s working capital location and other factors such as subsea cable connectivity.

Colliers’ research shows demand is outstripping supply, vacancy rates in Melbourne are the lowest in the region and almost 100 per cent of the new pipeline has been pre-committed.

A data center boom would create thousands of short-term construction jobs and billions of dollars in economic activity, followed by a smaller, ongoing workforce of skilled technicians to operate the new facilities.

Colliers City Planning Director Josh Maitland said Melbourne was “currently rivaling Sydney” due to “advantages in readily available land supply, energy availability and faster planning approval processes”.

He warned that failure to meet local demand would mean demand would have to be met abroad.

“This is damaging the Australian technology sector… More importantly, relying on offshore capacity undermines Australia’s data sovereignty,” he said.

Bronwyn Cumbo, a social researcher and lecturer at the University of Technology Sydney, said residents close to new hyperscale data centers were not adequately consulted because many projects were approved directly by state governments.

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He said the facilities could be noisy, disruptive, put a strain on local resources and lead to an increase in land values.

“They bring in a lot of money and investment… I think there needs to be a more balanced assessment right now about what a sustainable and inclusive data center future looks like,” he said.

The state government said water companies are engaging with data centers to understand their infrastructure needs and explore the option of recycled water.

Pearson said now was Victoria’s “moment” and a crucial time to establish the state as a technology hub and center of excellence.

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