Investments in data centers in India over the next three years are set to rise to $10 billion, 43 per cent higher than what it was over the last three years, and the total stock of data centers is also likely to double by that time.
In its report, “India Data Centers: Entering Growth Phase” property consultant Colliers has forecast the data center stock to rise to 23 million sq feet in terms of real estate space across the top seven cities.
About half of the upcoming supply is expected to be in Mumbai, followed by Chennai and Hyderabad.
India, with an inventory of around 150 data centers, is at a very nascent stage in this sector but is rapidly growing. “Availability of land and power at affordable rates, attractive returns and robust demand from hyperscalers have made India one of the most sought after market in data center space,” the report said.
Current data center capacity in the country is around 819 MW and the potential to grow is huge as India has over 880 million internet users and average data consumption spiked 44 per cent from 2020 to 2022.
The top five players in the sector have over 75 per cent of the market led by NTT.
Main drivers
Some of the main drivers of data centers in India are regulatory push giving it an infrastructure status, data localisation, strengthening of power supply, rural connectivity and spread of 5G services, and expansion in optic fibre networks and marine cables.
Mumbai has half the total data center capacity in the country and Chennai is at a distant 14 per cent share. While a major share of the new capacity is coming up in Mumbai, Chennai and Hyderabad are also likely to see significant additions in capacities over the next 3-4 years, the report said.
The size of data centers in terms of capacity has also increased. Prior to the pandemic, the data center capacity was between 4 and 20 MW, and this has risen to more than 20 MW, with large data center parks being set up by real estate developers.
P-E investments
Data centers are a preferred choice among investors and have received about $1.1 billion private equity investments since 2020, due to their strong growth fundamentals and attractive returns. They offer attractive yields of 16-17 per cent compared to 7-10 per cent in retail, office, and warehousing sectors.
More than half of the inflows into alternatives post the pandemic were in data centers, the amount surging 12 times in that time. Foreign investors accounted for the major portion of it.
“As the data center market grows bigger, the sector will likely witness allocation of more foreign capital, as global investors will look to have a stake in quality assets for long-term returns,” the Colliers report said.