Capacity Expansion And Investments In Data Centres To Spell a Boon For the Real Estate Industry

In order to secure its consumers' data, the Indian government has awarded the data centre industry as critical infrastructure, alongside railways, electricity plants and roadways

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Since the pandemic, India has seen widespread adoption of digital commerce, Internet-of-Things, and smart gadgets. Due to the tech-savvy nature of the nation's youth, it is anticipated that the use of digital devices will continue to increase, resulting in a high volume of data that will drive the demand for data centres. As per a recent report, the data centre industry is expected to add 703 MW of capacity by 2025's end, giving an opportunity for 9.3 million sq. ft of real estate development. These capacity additions will necessitate greenfield investments. Some reports peg that $4.9 billion will be needed to fuel the sector's future growth.

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In order to secure its consumers' data, the Indian government has awarded the data centre industry as critical infrastructure, alongside railways, electricity plants and roadways. It is also giving incentives for the establishment of data centres, which is enticing numerous enterprises to seize the chance.

The helping hand from the government

Rating agency CRISIL in June 2022, projected that India's data centre capacity would quadruple by 2025 to reach 1,700–1,800 MW. The present capacity of the country is roughly 870 MW, and India is anticipated to build 890 to 900 MW of capacity during the fiscal years 2023 and 2025.

The Indian government, too, is intensifying its digital measures to facilitate the development of data centres. The significant drive towards data localisation would ensure that 75 per cent of data remained within the nation.

The ministry of electronics and information technology (Meity) developed a data centre policy in 2020, granting data centres the same infrastructure status as roads, trains, and power, in response to potential in the field. The new policy intends to simplify the data centre clearance procedure. Currently, up to forty clearances are required for the establishment of a data centre in the country. Meity has further stated that cloud data centres would be designated as special economic zones (SEZs). The government would provide land, water, and energy to make doing business easier.

States such as Maharashtra, Telangana, Karnataka and Uttar Pradesh provide stamp and electricity duty exemptions, power subsidies, and land price concessions for data centres.

Data Centre hub – Gautam Buddh Nagar

The rapid development of land in Tier I cities has resulted in a shortage of land parcels, forcing real estate players to scout Tier II and Tier III locations to meet rising demand. Currently, cities such as Pune, Kolkata, Nagpur, Ranchi, Coimbatore, and Jaipur are undergoing urbanisation and being considered for the construction of data centres.

Earlier Navi Mumbai was the data centre capital of India. But the title has passed to Gautam Buddh Nagar in Uttar Pradesh with seven upcoming developments. Among the area's investors is NIDP Private Limited (a subsidiary of the Hiranandani Group of Companies) with Rs 9,100 crore and Adani Group with two projects totaling Rs 6,000 crore.

In addition to bolstering the local economy, data centres generate substantial financial rewards. As a result of these data centres, a considerable number of jobs are being created as well as increasing demand for residential and commercial real estate.

Chennai, because of its infrastructure advantages, also anticipates more growth. Consequently, in 2024, both cities will account for 68 percent of the total capacity. In the future, the construction of new cable landings connecting these cities would also increase available capacity. Nevertheless, landlocked regions such as NCR Delhi would also experience an increase in capacity addition due to government-led digital efforts and data consumption. Meanwhile, proactive state initiatives are transforming Hyderabad into an emerging destination for hyperscale cloud service providers.

Numerous Indian organisations have begun to invest in Indian data centres to meet the growing demand. Both the Hiranandani Group and the Adani Group have made strategic efforts in this area. Foreign companies like Amazon, EdgeConnex, Microsoft, CapitaLand, and Mantra Group have also begun investing in Indian data centres. Even incumbents in the market, including NTT, CtrlS, Nxtra, and STT India, are growing their capacity.

Future of Data Centres

In the era of digitalisation, the data centre industry in India is exhibiting significant growth. India is well-positioned to become a significant hub for data centres due to its cost advantage, availability of trained labour, low climatic risk, stable Government, and robust data protection legislation. India also enjoys an unmatched geographical advantage, which puts it at a perfect distance from other APAC financial and business hubs like Singapore, Dubai, and Shanghai, as well as European cities like London. Large worldwide data centre operators, cloud service providers, hyperscalers, private equity investors, and developers have invested in the nation. In 2022 and 2023, the use of cloud platforms and related services is anticipated to increase by double digits. The most established cloud service providers in the world have declared their availability zones in India, namely Hyderabad. Amazon Web Services is planning to launch three Availability Zones (AZs) in Hyderabad by 2022. Microsoft recently purchased property lots in Hyderabad in order to establish a new data centre zone. In India, Google has two cloud regions: Mumbai and Delhi-NCR.

While the opportunity is tremendous, there are also some challenges that need to be addressed. The development of data centres in Tier II and Tier III cities is still slow. Due to a shortage of space in India, data centres are clustered near landing stations. In addition to this, data centres also require an uninterrupted power supply, a problem faced across the country. Other challenges for the proliferation of data centres include access to fibre cable, clean land zones, and proximity to customer locations.

The data centre Market in India is predicted to reach $4.6 billion each year by 2025, according to the most recent estimate. Currently, India is home to over 80 third-party data centres, and investment from both domestic and foreign businesses is growing. Triple tailwinds — increasing data consumption, digitalisation, and localisation — are combining to drive India's demand for data centres.