Goodman Group Confident Of Contracts Flowing

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This story features GOODMAN GROUP.
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The market wanted an upgrade and fresh leasing announcements. Goodman Group's Q3 update didn't deliver. Analysts remain positive on the group's expanding data centre pipeline, pricing power and long-term exposure to AI-driven demand.

• Goodman Group reiterates data centre strategy at 3Q results
• Multiple contract wins expected through the first half of FY27
• Competitive moat widens, operating EPS guidance slightly up
• Potential for development yields to beat market expectations

By Mark Woodruff

While anticipated leasing deal announcements did not eventuate, leading global industrial and data centre developer Goodman Group ((GMG)) used its third-quarter result to reaffirm a deliberate strategy of deploying balance sheet capital ahead of customer commitments to secure scarce power-enabled metropolitan data centre development capacity.

The business continues to shift toward a larger mix of higher-margin data centre developments relative to traditional logistics assets, supporting long-term earnings growth albeit alongside extended project delivery timelines, stockbroker Morgans explains.

Data centres now account for 73% of Goodman’s development work in progress (WIP) and market conditions remain “pretty hot”, according to management, supporting pricing power across the development portfolio.

Operationally, Morgans views the market update as mixed, with pre-commitments, production run-rate and yield-on-cost all broadly flat half-on-half.

The more strategically important takeaway, in the broker’s view, is management’s observation that global data centre capex requirements are likely exceeding available funding capacity, creating a favourable backdrop for operators with secured power access, development sites and established capital partners.

While the total power bank expanded further, Macquarie highlights no new customer contracts were announced, and market expectations continue to sit above current guidance.

Management noted multiple non-disclosure agreements (NDAs) have already been signed and customers are progressing through due diligence, with Morgan Stanley expecting several contracts to be secured by December.

Providing further confidence in outcomes, this broker explains contentious items between parties concern a ready-for-service date, rather than rent or lease duration.

Management’s guidance has been subtly upgraded to “at least” 9% in FY26 operating EPS growth versus consensus expecting 9.7%.

FY26 DPS guidance of 30c has been maintained, broadly in line with consensus’ expectation of 30.2c.

Where is the upside?

Goodman benefits from a strong data centre development pipeline, an established global logistics and industrial platform, and a high-return funds management structure.

Macquarie explains upside drivers to the business and management guidance are performance fees and percentage of development completions.

As development projects complete and market valuations crystallise, Citi anticipates performance fees will surprise to the upside.

UBS also points to Goodman’s enviable access to capital across global markets, alongside strategically located warehouses and landbanks that can be repurposed into higher-value data centres and modern logistics facilities.

UBS highlights the group’s major Los Angeles data centre development project (LAX01) located in Vernon, California, and the Hong Kong data centre development project (HKG10) are closer to securing contracts than the Sydney and European projects.

Competitive moat

Goodman added 400MW, to its power bank during the March quarter, taking the total pipeline to 6.4GW. Jarden notes additional contributions were largely driven by the Australian operation.

With 3.6GW of the 6.46GW already secured and a further 2.8GW in advanced procurement, Citi views Goodman’s global power bank as a competitive moat that would be extremely difficult to replicate.

Management maintained its FY26 development WIP target of $18bn, up from $14.5bn in the March quarter, with major European data centre projects in Amsterdam and Paris expected to drive the step-up during the current quarter.

Bell Potter explains the rise in development WIP (expected by management) will occur during the fourth quarter as several large European data centre developments formally enter active construction and are recognised within the WIP pipeline.

Run-rate and yield-on-cost

The increase is being driven by two factors: a larger overall development pipeline; and longer construction timeframes for data centre projects compared with traditional logistics developments.

Another measure is yield on cost, a property development metric that measures the expected annual income generated by a project relative to the total cost of development.

Management also reiterated data centre yield-on-cost targets of 9%-11%, with industrial developments continuing to generate yields above 7%.

Strong expected leasing outcomes across Tokyo, Hong Kong and European data centres prompt Ord Minnett to lift its yield-on-cost assumption for the development pipeline to 10% from 9.5%.

Assuaging market fears

Citi views Goodman’s balance sheet as well positioned to fund the accelerating data centre expansion pipeline, with no signs of near-term capital pressure.

As major customer signings across the market have been announced by peers, Bell Potter explains the market continues to await stronger leasing momentum, particularly at LAX01.

Goodman’s long track record as a customer-first operator suggests the slower pace likely reflects project timing, leasing complexity and development sequencing rather than weak demand, the broker believes.

Bell Potter adds both management and broader industry commentary continue to point to robust demand conditions and strong rental growth where supply remains constrained.

More March quarter metrics

As noted, development WIP was broadly stable compared with the first half at $14.5bn, with 37% of data centre developments already secured by tenant commitments.

The logistics business performed softer than the data centre segment, with occupancy declining -20 basis points (bps) from the first half to 95.7%, or down -30bps to 97% excluding Greater China properties.

Total assets under management (AUM) eased to $87.1bn from $87.4bn in the first half, though much of the decline reflected appreciation in the Australian dollar, Ord Minnett observes.

Evolution of data centre partnerships

Goodman Group’s European data centre investment partnership (GEDCDP) structure involves external capital partners investing alongside Goodman across a portfolio of data centre developments.

UBS explains this structure allows the group to recycle capital, earn development and management fees, retain exposure to long-term growth, and accelerate expansion without fully funding projects on balance sheet.

The analysts suggest Goodman may look to replicate the European partnership model in Australia, potentially involving a single strategic partner across multiple Sydney and Melbourne projects under a portfolio-style structure rather than partnering on developments individually.

Ongoing progress across Goodman’s data centre development and leasing pipeline is expected to support multiple contract wins through the first half of FY27.

The broker also notes early indications from leasing negotiations (with one example running more than 20% above feasibility assumptions) suggest management’s strategy of locking in costs and offering delivery certainty amid accelerating demand could generate development yields above market expectations.

Highlighting the depth and scalability of Goodman’s global data centre pipeline, UBS points to the potential inclusion of additional Melbourne and Sydney sites within the Australian data centre development partnership, alongside the addition of TYO06 (50MW) in Tokyo to the delivery schedule.

Outlook

With $74.5bn in assets under management across 400 partnership properties, a growing global power bank and development work in progress forecast to approach $18bn by June 2026, Citi believes Goodman continues to provide infrastructure-scale exposure to accelerating AI, cloud and logistics demand.

While retaining some questions around leasing progress, extended development timelines and the associated impact on earnings mix and profit recognition, Bell Potter believes the competitive moat between scaled data centre operators and smaller players continues to widen given the increasing scale and complexity of execution.

Following the recent pullback, Goodman shares now trade at a lower premium to the ASX200 than their five-year average, the broker highlights. Future customer signings are viewed as a key catalyst.

Morgan Stanley notes management has consistently delivered on its development pipeline historically, even if project timing has often taken longer than the market’s impatience wanted it to be.

Citi believes management remains appropriately conservative around fair value gains, which underpin performance fees and development feasibility assumptions, although this broker expects these are likely to exceed current guidance as the development pipeline matures and asset values are realised.

All but Hold-rated Ord Minnett of the seven daily covered brokers researching Goodman Group in the FNArena database have a Buy-equivalent rating.

Following March quarter results, the average target of the seven has risen by 46c to $34.68, implying circa 10.6% upside to the $31.35 share price at the time of writing.

Outside daily coverage, Jarden has a Buy rating. 

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