Is the Indian Real Estate Industry Gravitating Towards Data Centres?

Vinit has been associated with AMS for over 15 years now, prior to which he held the role of Manager at IL&FS Property Management & Services.

The real estate sector has witnessed several highs and lows over the last decade. However, the advent of the COVID-19 pandemic brought along challenges that previously didn’t exist. While state governments did their bit to boost the sector by slashing stamp duty rates (ex: Maharashtra), this wasn’t a long term solution.

The pandemic has expectedly seen an increased dependence on data centres. It’s worth noting that given the nature of data centres, they’ve been among the least impacted industries during COVID-19.

Real estate services firms anticipate big cities like Mumbai, Chennai, Hyderabad, and Delhi NCR to be the beneficiaries of this renewed demand for data centres going forward.

The policy framework in place right now, coupled with advancements in mobile technology, especially with the imminent arrival of 5G, will bolster the demand for data centres even further

In addition to the real estate industry, which will make up for a portion of the demand, sectors like pharma, Fintech, e-commerce, education, media, retail, manufacturing, as well as hospitality will also help boost demand for data centres in key locations across India.

Digital India and 5G: The key drivers for data centres
The internet consumption in India swelled by 13% in March 2020 after the lockdown was announced, as per the Department of India (DoT) report in April 2020. The policy framework in place right now, coupled with advancements in mobile technology, especially with the imminent arrival of 5G, will bolster the demand for data centres even further. As the country moves towards bracing the nuances of Digital India and more services go online, there will be greater utilisation of data. Other factors like the emergence of Artificial Intelligence(AI) and Internet of Things (IoT), as well as cloud computing, will also drive demand for data centres in the country.

Post pandemic the data needs of working individuals have changed drastically. This will continue to be the case with the advent of hybrid work culture wherein people continue to use shared cloud workspaces and rely more on virtual meetings.

A recent report has predicted that the positive demand for data centres is expected to be boosted by 15 to 18 million square feet over the next 4-5 years. It also estimates power usage from data centres between 2021-25 to cross 2,500 megawatts (MW).

Current data shows that data centres in India consume more than 650 MW of energy while taking up 7.5 million sq ft of real estate. Moreover, around 8 million sq ft of real estate with an energy consumption capacity of 870 MW are believed to be under construction. It is also pegged that the Indian data centre market could show a higher growth rate than the world average.

India’s robust data protection laws are expected to attract big investments from across the globe, potentially turning the country into a data centre hub for the Asia Pacific region.

India currently has 123 operational data centres whereas there are 451 in the UK, 442 in Germany, and 199 in Japan. Meanwhile, the United States leads the pack with 2,653 data centres within its territory.

Currently, the data centre segment is flourishing in major Indian cities like Bengaluru, Chennai, Delhi NCR, Mumbai, and Hyderabad, while regions like Pune and Kolkata are among the cities to watch out for as data centres become more prevalent across the country. There are great synergies between real estate and data centres. As the data centre space continues to evolve in the country, it is bound to have a ripple effect on the real estate sector as well.