Increasing Data Consumption Making Data Centers a True Asset Class For Real Estate

According to a report by Crisil, India's data consumption has seen a sharp 38 per cent rise year-on-year for FY21 on account of COVID-19
Increasing Data Consumption Making Data Centers a True Asset Class For Real Estate
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Director - Data Center Advisory Practice, India, CBRE
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India holds great potential to become the next host for data centers. With the pandemic shifting the attention to the digital needs of businesses and individuals, it led to a rise in the number of data users, Internet penetration, and an increase in digital data traffic. This has generated demand for data storage of IT & telecom, BFSI sectors, and global IT giants with operations in India. According to a report by Crisil, India’s data consumption has seen a sharp 38 per cent rise year-on-year for FY21 on account of COVID-19 and they are expecting the industry to log a rapid 25 per cent CAGR to $4.5-5 billion by FY25.

The digital wave that led to this growth in India

As the lockdown began, the Internet activity expanded on a large scale. With corporates and schools shifting to work from home models, and banks and other services turning to digital servicing the demand progressed by factors such as cheap data prices, low-cost smartphones and high Internet penetration in the urban and rural areas. The government’s effort towards data localization law, technology enhancement in storage, availability of high-speed data connectivity, and a surge in e-commerce business is also likely to increase the presence of cloud service providers, thereby increasing data center. The rising need for data centers boosted the number of data centers and larger-sized data centers projects.

Sectors driving the growth of data centres in India

With rising demand witnessed from real estate, private equity (PE), and infrastructure funds to invest in data centers, they anticipate growth in cloud services due to IoT, the launch of 5G, data localization and cumulative digital consumption. With a sudden upsurge in people working from home, data center’s capacity usage increased as companies began to overhaul their digital infrastructure to deal with the new work environment. Basis the upsurge corporates in cloud services and social media companies such as AWS, Microsoft, Google, Facebook and Oracle are looking at collaboration rather than competition. They all have established data centers in India and are expanding them as well. With the global market’s interest in the Indian data center market, many MNCs are looking to establish in India and in such a scenario their sensitive and critical data will get accommodated and processed in India itself

Government policies, such as national e-commerce policy, digital India and several others have also helped in the rising need for data centers, along with a demand from the sectors such as retail, e-commerce, fintech, education, pharmaceutical and more.

Growing possibilities for real estate in India

For an investor or developer, this is the perfect option to explore the new possibilities of the segment. Data centers were identified as one of the top five alternate real estate investment options and India emerged as one of the top investment destinations across APAC (Asia-Pacific) as per CBRE’s APAC Investor Intentions Survey, 2019. According to a report in 2020, over the next five years, this asset class will drive sustained investor demand basis the augmented shift from captive to colocation data centers, data protection laws clout, and application of new technologies like 5G, edge computing and the IoT. The new hotspots for data centers are cities that are flourished with IT and BFSI related businesses such as Mumbai, Hyderabad, and Bengaluru to name a few. In such cities, demand for hyper-scale data centers has risen which is expected to lead to potential commercial real estate growth. Currently, the data center hubs are present in all the major cities, and India holds the capability to become the next data center hub. Reasons leading to this will be - market preference by multinationals, availability of high bandwidth speed, low internet cost, low power tariffs, and presence of growing suitable spaces.

That said, for large spaces with complex machinery involved which require constant care and protection, an advisory will be much helpful and effective to work on a real-time basis. As it requires high intensity and stability of power supply and aims to deliver strict technological, mechanical, and environmental requirements. The infrastructure must be well designed and maintained to ensure optimal operation and efficiency. CBRE has strengthened its Data Centre Advisory Services that will help business and technology leaders to build their businesses with precise information and the least amount of effort. This includes services across the entire real estate and IT lifecycle of a Datacenter, including advisory, transaction, project, and facilities management disciplines.

 

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