USD10 Bn investments to be deployed in data centers; stock set to double by 2026
by Priya Jadhav
· Data centers to see investments of USD10 Bn over the
next 3 years, a 40% rise from the last three years
·
About
half of the upcoming supply during 2023-26 to be located in Mumbai, followed by
Chennai and Hyderabad
Mumbai,
India, 12 October 2023: India’s data center stock is likely
to double to 23 mn sq ft, translating to a total investment potential of USD10
Billion over the next 3 years across the top 7 cities, according to
the Colliers’ latest report “India Data Centers: Entering Quantum Growth
Phase”. The
report was unveiled at the Second Edition of CII Conference on Tech in Real
Estate today at Taj Lands End, Mumbai. Colliers was the Knowledge Partners for
the event.
“Significant
expansion of the Indian economy by 2047, will be powered by Real Estate. A
multifold economic expansion will boost demand across all the asset classes -
residential, commercial, warehousing, industrial land developments, etc. - will
grow at a multiplier rate to accommodate the growing needs of the economy and
consumption needs of the individuals. In recent years, the global real estate sector
has witnessed a paradigm shift in its approach to sustainability, with the
growing recognition of the Environmental, Social, and Governance (ESG) factors.
Environmental, Social, and Governance (ESG) standards have emerged as crucial
factors for analyzing the long-term viability and ethical practices of businesses
in a variety of industries, including real estate.”, said Dr K Nandakumar,
Chairman, CII Maharashtra State Council & Chairman and Managing Director,
Chemtrols Industries
Driven by quantum growth in data consumption and cloud adoption, data centers
have witnessed significant growth post pandemic with total capacity growing two-fold since 2020. As of August
2023, the data center capacity across the top 7 cities stands at 819 MW, spread
across 11.0 million sq feet. Led by exponential increase in data consumption, improving
regulatory framework and robust investments in the sector, the data center capacity
is likely to double up faster in the next phase of growth, crossing 1,800MW by
2026. With the Digital Personal Data Protection Bill 2023 being passed by both
houses of the legislature and set to become a law soon, the Data Center story
in India has all the markings to embark on a hitherto unseen success
narrative.
Data center stock in India (million
sq ft) –
|
Year |
2017 |
2020 |
2023* |
2026F |
|
Stock (in msf) |
2.7 |
6.2 |
11.0 |
23.0 |
|
DC Capacity (in MW) |
188 |
439 |
819 |
1,800 |
Source: Colliers
Data pertains to top 7 cities - Bengaluru, Delhi-NCR, Mumbai, Pune,
Hyderabad, Chennai & Kolkata.
Stock represents total IT load capacity including occupied as well as unoccupied
space.
*2023 stock is as of August 2023
"Indian data center market
propelled by tail winds of digitization, on premise to Colocation shift, data
localization and Generative AI demand will see a quantum leap in the
construction, delivery and absorption of Data Center space. Data Center as an
asset class is proving to be a play with high yield and lower risk once
stabilized, with sticky customers which enables patient institutional capital
to write larger cheques.” said Ramaiy Kapoor, Managing director, Data
Center, Colliers, India
Tier I cities see accelerated growth;
Tier II cities likely to see steady ascent
Mumbai continues to remain a
relatively matured data center hub, hosting half of the data center capacity of
the country. Chennai, Bengaluru and Delhi-NCR are already relatively
established markets, while Kolkata remains an emerging hub catering to the
zonal data requirements of the region. In the next three years, Mumbai is
expected to account for about half of the new additions, owing to the presence of
submarine cable connectivity, landing stations and internet exchanges. Along
with Mumbai, Chennai and Hyderabad are also likely to witness increased growth
owing to strong support infrastructure and encouraging regulatory framework.
While Tier I cities are preferred
locations for data center expansion, Tier-II cities are also witnessing steady
growth. Currently, Tier-II cities hold only 4% of the total data center capacity
in India. However, key data center operators are eyeing multiple cities such as
Ahmedabad, Jaipur, Kochi, Nashik, Vijayawada and Bhubaneshwar as potential
locations for setting up Edge data centers and as disaster recovery sites.
Increased internet penetration, hybrid working, establishment of startups and
Technology hubs in these cities will further drive data center growth across
these locations in the next phase of growth.
City-wise existing and upcoming data
center capacity split -
|
City |
Existing data center capacity split (% share) |
Upcoming data center capacity split (2023-26) |
|
Mumbai |
50% |
47% |
|
Chennai |
14% |
14% |
|
Delhi NCR |
11% |
7% |
|
Bengaluru |
10% |
7% |
|
Pune |
9% |
5% |
|
Hyderabad |
5% |
13% |
|
Kolkata |
1% |
1% |
|
Multi-city |
- |
6% |
|
Total DC Capacity (MW) |
819 MW |
981 MW |
Source: Colliers
Existing data center capacity represents total IT load capacity
including occupied as well as unoccupied space. Data as of August 2023
Robust Investments fueling Data Center
growth
Investors, sparked by data
localization efforts in the country and drawn by the prospect of stable income
and better yields are capitalizing on the India data center growth story. Since
2020, data centers have received cumulative investments of USD7.0 billion from global data center players real
estate developers, and private-equity funds who are looking to
expand in India. About 11% of the total investments in data centers since 2020 were in
land, and the quantum is expected to rise further in near future, as data
center operators continue to scale up their operations across geographies.
A growing recognition of the
significance of India’s data centers as lucrative high-yield options is quite
evident, especially amongst foreign investors and is expected to gain further
momentum in the coming years, as the market grows broader. Since 2020, the
sector has received about USD1.1Bn of institutional inflows, 93% of which
were from foreign investors.
“India has
emerged as a vibrant hotspot for data center expansion amidst increased cloud
adoption & digital penetration, robust demand from hyperscalers &
relatively lower real estate costs, attracting both domestic and foreign
investments. Over the next 3 years, the sector is likely to see USD10 bn of
investments, resulting in doubling of the data center capacity to 1800 MW.
Interestingly, 30-35% of the total investments will translate into business
opportunity for real estate players in the data center space including land and
construction.” said Vimal Nadar,
Senior Director & Head of Research, Colliers India.
Institutional investments in Data
Centers (USD
million)
|
Year |
Investment inflow (USD million) |
Share in total investments in
alternatives |
|
2019 |
82.0 |
42% |
|
2020 |
235.0 |
65% |
|
2021 |
270.5 |
60% |
|
2022 |
448.7 |
52% |
|
YTD 2023* |
72.2 |
46% |
Source: Colliers
Note: *Data is as of September 2023
Note: The institutional
flow of funds includes investments by family offices, foreign corporate groups,
foreign banks, proprietary books, pension funds, private equity, real
estate fund-cum-developers and sovereign wealth funds. The data has been
compiled as per the available information in the public domain
Hyperscalers to drive growth of data
center space
Global hyperscalers are viewing India
as a prime market for expansion to capitalize on the increasing demand from
cloud usage. 2023 has seen landmark pre-commitments from global hyperscalers in
India’s data center space. As a cost optimisation and revenue–boosting
strategy, hyperscalers are looking to build their own Built to Suit (BTS) data
center facilities in India. We are likely to witness increasing investments from
hyperscalers in the next 3-4 years, who are looking at large scale expansions
in India, focusing on long term growth. This is prompting developers to pursue “land banking”
strategies, in which they are acquiring land for future projects in markets
where development sites are scarce.
Green data center penetration on the
rise
Top data center operators are increasingly
prioritizing decarbonization of their data center portfolios, committing
towards achieving their net zero targets by 2050. Decarbonization offers
significant benefits to operators, in terms of enhanced rental premiums, asset
valuation, brand recognition and reduced operational costs. As of 2023, only about 20% of
the existing data center stock is LEED certified. However, there has been a 61%
rise in green data center capacity compared to 2020 levels, as global operators
are increasingly investing in low-carbon and energy efficient technologies to
reduce the impact on environment and achieve optimum efficiency.
Since data centers are typically associated with high energy consumption, there is ample room for more sustainable elements to be adopted. Going forward, energy efficiency will play a critical role in data center demand-supply dynamics.
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