India is one of the fastest growing markets for the digitisation of businesses. Combined with the government mandate for the localisation of data, India has witnessed a 550% increase in investments in Indian data centres in 2021 amounting to $2.2 billion compared to $392 million in 2020. In fact, data centres accounted for 26% of all private equity investments in Indian real estate in 2021. Overall, India currently accounts for 1.5% of data centres globally and is a steadily growing market. Consumer behaviour in India witnessed a monumental transformation during the COVID pandemic with the widescale adoption of online services. With over 700 million internet users across the country, there was an exponential migration towards online services and ecommerce due to the nationwide lockdown. This sudden shift in consumer behaviour led to a surge in data centre opportunities, which was a boon for the real estate sector.
This was further bolstered by the requirement to localise all data that is generated and processed in the country. The impact of data centres paralleled with the growth of the ecommerce industry has not gone unnoticed by developers and investors. The data centres segment was one of the real estate asset classes that was least affected by the pandemic globally, signalling their crucial role in supporting continued business activity. The underlying factor is that online services cannot exist or grow without data centres, and the real estate sector needs to adapt accordingly.
Demand to rise
Data centres in India currently occupy approximately 7.5 million sq.ft, while more than 8 million sq.ft. are under-construction. Real estate demand for data centres is expected to increase by 15-18 million sq.ft. in the next five years across major Indian cities. The Indian data centre market is expected to be worth over $10 billion by 2027, with a compound annual growth rate of 15.7%. This surge will be driven by the adoption of 5G, Internet of Things, Artificial Intelligence, thus increasing use of cloud services.
The emergence of smart cities will also play a massive role in the adoption of data centres. Smart cities will have underlying themes including device connectivity, utilisation of big data and creation of feedback loops — all requiring immense data accessibility and storage.
The government’s proposed Data Protection Bill, which mandates localisation of data in the country, is also likely to encourage investment in the segment and support the necessary infrastructure to cater to the growing digital consumption. The increasing adoption of cloud technology, ecommerce, and online storage will drive the need for data centres in the country.
India’s data centre capacity is low compared to the volume that the market demands, thus offering excellent scope for the segment to grow. The Indian data centre market is poised to exhibit a higher growth rate than the world average.
Talent pool
Data centres will continue to remain an essential service. High demand and shorter construction time combined with attractive returns and stable long-term yields have led to the rapid expansion of the data centre segment across India leading to more real estate investment opportunities.
The growth of ecommerce has created a massive demand for date centre real estate. Supported by proactive governance and the presence of a massive talent pool, cities such as Hyderabad and Bengaluru have spearheaded the IT/ITeS surge in India with many ecommerce giants establishing their headquarters there.
The ubiquitous digital transformation across India has both accelerated and decentralised the demand for date centre facilities in previously under-serviced locations. Large companies require a varying range of data centre facilities depending on their scale of operations. These facilities need to be in accessible locations with the ability to operate 24 hours a day in order to provide consistent uptime, reliability, and redundancy.
Data centres can be operated in tier 1, tier 2, and tier 3 cities as space and connectivity are the primary constraints. Accordingly, the growth in the data centre segment has led to subsequent real estate growth in tier 2 and tier 3 cities as well.
Due to high power, maintenance, security and real estate costs, many companies are increasingly in favour of Third-Party Data Centre operators, wherein India is playing a vital role. Given India’s robust network connectivity, cost advantage, availability of skilled labour, low climate risk, and strong data protection laws, India is well positioned to serve as an important Data Centre hub in the Asia Pacific region.
Edge data centres boom
The writer is Director, Aparna Constructions & Estates Private Limited.
