<p>With the advent of ongoing population growth and rapid urbanization, building density has increased significantly. This trend has been responsible for increased urban temperatures and thus resulting in higher reliance on air-conditioning (AC) systems. Although these systems improve indoor comfort, they also release waste heat into the outdoor environment. This waste heat can worsen the urban microclimate and thus represents a hidden thermal cost of AC. This study investigates the influence of AC waste heat on neighbourhood-scale microclimate using an uncoupled computational fluid dynamics (CFD) and building energy modelling framework. The study utilises a hypothetical urban area consisting of 16 buildings under the hot semi-arid climate of Rajkot, Gujarat, India. A total of six air conditioner deployment scenarios with different condenser locations were analysed to evaluate heat build-up and its impact on cooling energy demand. The results indicate that façade-mounted AC systems can increase pedestrian-level temperatures, with interior street canyons warming by more than 1 ℃ due to limited airflow and heat trapping. In contrast, rooftop-mounted systems allowed heat to disperse more effectively and resulted in lower heat accumulation within the canyons. These changes in the urban microclimate also affected building cooling demand, with façade-mounted configurations increasing annual cooling energy consumption by up to 2113.6 kWh, whereas rooftop installations limited the increase to about 513.6 kWh. To assess the combined thermal and energy impacts of AC waste heat, an Urban Cooling Energy Penalty (UCEP) metric was developed. The UCEP values ranged from 0.65 for rooftop-mounted configurations to 11.94 for façade-mounted configurations. These findings suggest that AC condenser placement can influence thermal conditions and cooling energy demand and may therefore be considered in urban planning and building design.</p>