ASX data centre player expands pipeline but questions remain

Yingqi Tan | Morningstar

Data centers were two-thirds of Goodman’s (ASX.GMG) $14.5 billion development pipeline at the end of March 2026, and the group remains committed to expanding it to $18 billion by June 2026. Management also reiterated its fiscal 2026 operating earnings growth target of at least 9%.

Why it matters: Between now and the end of June, Goodman wants to break ground on $3.5 billion worth of data center projects, so a lot needs to be done, and quickly. But our bigger concern with the firm’s March-quarter update is not the pace of commencements but the lack of clarity on leasing.

• Most sites are due for completion in 2028 or 2029. Yet the firm hasn’t locked in any major customer commitments. Management defended the build first, lease later approach as a way to nail down construction costs and lease assets at the right level.
• However, heavy capital spending on long lead time development without any certainty on tenant demand is a key risk that many peers avoid by securing tenant commitments before construction. Goodman instead prefers linking up with third-party capital partners to reduce risk.

The bottom line: We maintain our fair value estimate of $29 per security for narrow-moat Goodman, with our forecasts unchanged.

• The securities had a stellar run in 2023 and 2024 due to data center exuberance, but have since fallen considerably to close to fair value. We think the market is growing impatient, waiting to see execution.
• Our forecast for fiscal 2026 distributions of 30 cents per security represents an unfranked income yield of 1%.

Between the lines: Goodman is currently in negotiations with multiple prospective customers. At this stage, we don’t believe the absence of customer commitments reflects the undesirability of its data centers. We think Goodman should be able to lease them closer to completion.

Goodman’s Data Center progress in focus

Goodman operates an own-develop-manage business model. A typical cycle starts from acquiring a site and developing it. Completed projects are either sold or retained in one of Goodman’s funds or partnerships. Goodman typically retains minority stakes in the investment vehicles and continues to manage the sites after completion.

The group’s development-led strategy fuels growth of its asset base. As of December 2025, Goodman’s total assets under management reached AUD 87 billion, tripling the asset base of 10 years ago. Its development pipeline has also experienced significant expansion, growing to $14 billion by December 2025, compared with fiscal 2014’s $3 billion. With a large development pipeline and an active development strategy, we expect AUM to enjoy mid-single-digit percentage growth over the medium term, and the management segment to contribute almost 40% of the group’s midcycle operating earnings.

The pivot toward larger-scale, higher-value projects not only expands pipeline size but also increases project lead time. Today, an average development project takes about 25 months to complete, up from 17 months in 2020. This reflects a higher percentage of data center projects, an area of focus for Goodman in the short to medium term.

Despite larger developments, capital management has remained prudent. Most development projects have capital partners involved, with high tenancy precommitment and long leases secured. The company has been rotating properties into its funds or disposing of its assets to external third parties. By doing so, Goodman is redeploying capital to new opportunities and maintaining low leverage on its own balance sheet.

Goodman prefers urban infill locations in core gateway cities, and this adds to the appeal of its portfolio. These locations—typically in established and densely populated neighborhoods and close to end-consumer markets—are supply-constrained. Good locations, combined with structural tailwinds like e-commerce and cloud technology booms, are likely to underpin solid rent growth in the medium term.

Bulls say

• Structural tailwinds, such as rising e-commerce, supply chain transformation, and cloud technology, are likely to continue having a significant bearing on industrial property demand.
• Goodman’s large development pipeline is supported by its balance sheet capacity and the capability to attract capital partners.
• Goodman’s investment vehicles are gaining investor inflows given their scale, strong track records, management expertise, and the ability to secure leases prior to development completion.

Bears say

• Industrial property has benefited from several years of tight supply, and rents have increased dramatically. There is a limit to how much more rents can grow, as tenants may not be able to keep paying higher rents if productivity is not going up at the same pace.
• Rival REITs are competing to acquire industrial property and establish fund management businesses.
• Goodman’s data center developments hinge on its ability to secure infrastructure and power. Regulatory approvals and environmental policy are a wild card.

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