The Data Centre (DC) industry in India is set to witness remarkable growth, with projections of adding 791 MW capacity by 2026. This expansion will drive a demand for 10 million sq. ft. of real estate space, attracting investments worth USD 5.7 billion. The surge is primarily fuelled by the increasing adoption of Artificial Intelligence (AI). As usage of AI gains pace, the demand for Indian DCs is expected to be in the range of 650-800 MW during 2024-26.

Source: JLL Research

The exponential growth in computing power and the resulting new applications are expected to drive strong demand for DC industry over the medium term.

Cloud Service Providers (CSPs), who essentially offer IT infrastructure systems primarily for data storage and computing power accessible through the Internet, have realigned their requirements to factor in AI-led demand. The CSPs have also announced higher investments to scale up AI-led growth.

“The exponential growth in processing power and data volumes, driven by AI, necessitates the development of new data centres capable of meeting energy, processing, and cooling needs. The anticipated expansion and progression of diverse AI disciplines are projected to create additional demand for data centres, expanding their capacity requirements and advancing their capabilities” said Rachit Mohan, APAC Lead – Data Centre Leasing and Head – Data Centre Advisory, India, JLL.

Improved absorption during H2 2023 (July-Dec 2023)

During the second half of 2023, there was a 12% increase in absorption to 81 MW compared to 72 MW during the same period last year. This growth can be attributed to CSPs gaining momentum after a brief hiatus during the first half of 2023. In Mumbai, absorption nearly doubled during this period as CSPs renewed their pace of absorption.

“India is poised to be the third-largest economy, with a projected USD 5 trillion GDP by 2027 with digital economy contribution of around 20 per cent. This digital expansion is anticipated to propel the growth of India’s data centre industry, projected to increase from 853 MW in 2023 to 1,645 MW by 2026. This increase in capacity will require an investment of USD 5.7 billion and approximately 10 million square feet of real estate,” said Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.

There was a lower supply addition of 75 MW during H2 2023 as the available supply from the first half was utilised to meet the demand, resulting in tighter vacancy levels of 5.5%.

Source: JLL Research

India’s focus on AI is evident through the India AI mission, aimed at fostering innovation, upskilling the workforce, and ensuring responsible and ethical deployment of AI technology. With a large user market, talented workforce, and thriving startup ecosystem, India presents a significant opportunity to emerge as a global data hub, driven by sustainable practices. The country’s DC sector expanded from 350 MW in 2019 to 854 MW in 2023, in line with the increasing digital usage trends.

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Data center growth during 2007 – 2022 (in mn sq ft)

Note: Data pertains to the top 7 cities: Bengaluru, Delhi-NCR, Mumbai, Pune, Hyderabad, Chennai & Kolkata Source: Colliers

Mumbai accounts for the largest share of data centers at 49%, benefitted from the presence of a landing station and submarine cable connectivity. Delhi-NCR has about 17% of the total data center capacity, followed by Bengaluru. While metro cities remain core hubs for data centers, Tier-II cities are also witnessing traction. Currently, Tier-II cities hold only 3% of the total data center stock in India. However, key data center operators are eyeing cities like Vijayawada, Nagpur, Raipur, Kochi, Patna, and Mangalore as potential locations for setting up edge data centers and as disaster recovery sites.

City-wise share of data center capacity 

Investments in data centers remain unfazed; cross USD10 bn since 2020

Since 2020, data centers have received cumulative investments of USD10 bn, and have seen surging partnerships between developers and global operators. The investments are from global data center operators looking to expand into India, investments from corporates and real estate developers, and private-equity funds. Rising data consumption, coupled with favorable government policies have spurred investments in the sector in the last 2-3 years.

“Data centers are capital intensive and investors with a long-term horizon are exploring this asset class. While real estate costs are only about 25%, there is ample opportunity for developers and investors in this space. At the same time, there is now a greater need to make data centers more sustainable. At present, only 22% of the existing data center stock is LEED-certified. Global operators are increasingly investing in low-carbon and energy efficient technologies to reduce the impact on the environment and achieve optimum efficiency. Edge data centers are the next big opportunity in India, as these data centers support the sustainable transition of data centers through smaller footprint, and lower energy consumption,” said Ramesh Nair, Chief Executive Officer, India and Managing Director, Market Development, Asia, Colliers.

“The data center Industry is at a breakneck pace at the moment, poised to double up the built space to 20 mn sq ft by 2025. India is getting positioned as a hub for data centers across APAC. With the challenge of expansion in other developed markets like Singapore, India is taking a steady growth linked expansion, connected directly with the end user consumption. With two landing station hubs connecting the country on the west coast and east coast, India managed to create a better fiber penetration into the country, which is leading to increased internal consumption. Edge data centers coupled with 5G launch is going to create additional opportunities in expanding the data center footprint across the country. These Edge data centers are going to create a huge opportunity in the rural employment in India, added Rao Srinivasa, Managing Director, Data Centers, Project Management at Colliers India.

“Indian data center industry has witnessed robust growth between 2012-22 growing at 21% CAGR, led by increased adoption of smartphones, e-commerce and cloud services. Hyperscalers are also rapidly gaining ground and ramping up their investments in India as they plan to set up multiple data centers across key cities. Realizing the market potential and abundance of opportunities in India, investments in data centers are likely to remain popular amongst investors.” says Vimal Nadar, Senior Director, Research, Colliers India.

Also Read: Amazon to pay Rs 1.4k Crore rent over 15 years for a data center in Thane

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In terms of IT capacity (nearly 1,015 MW), over 69% of this planned new supply will come up in Mumbai and Chennai, with 51% in Mumbai alone. Currently, there are 138 DCs across India spanning ~11 mn sft and having 737 MW of IT capacity (building ready). At least 57% of this current IT capacity is in Mumbai and Chennai collectively.

With the addition of this new planned supply, 2025-end will India hosting 183 DCs with ~24 Mn sft and at least 1,752 MW of total IT Capacity.

Devi Shankar, President – Industrial & Logistics and Data Centres, ANAROCK Capital, says “The current size of the India data centre industry is approx. USD 5.6 Bn and is bound to grow. The unprecedented crisis created by the COVID-19 outbreak has propelled the data centre business forward, providing an unexpected tailwind. Technology adoption and digitization across the sectors were fast-tracked globally and India also leap-frogged at least a decade in the last couple of years. The country’s total estimated data centre demand is expected to be 2,100 MW as of FY 2025, with a mix between hyperscalers and enterprises – 35:65 (excluding self-owned hyperscaler capacity).”

Meanwhile, there is additional potential of nearly 2,688 MW of future unplanned supply in India. Land for this supply has been locked in by DC operators, but the projects will likely be planned based on actual demand and/or outcome of earlier planned phases. While this represents land banking for providing scalability for future expansion to customers, this capacity must be judiciously released into the market to ensure price stability. Around 78% of this unplanned IT capacity is to be concentrated in Mumbai and Hyderabad.

Jeff Binwanger, Managing Partner, Binswanger, says, “Companies are really starting to relook where they are putting their operations globally, where they would like to relocate and where do they want to manufacture, distribute and set up their database and technology facilities. Data centres are currently a fulcrum for a lot of the decision-making, especially in Asia Pacific and in India.” 

Data Centre Trends

The report also highlights the various trends of a Binswanger-ANAROCK survey conducted amongst IT professionals in India to analyse trends in the Indian data centre industry, as perceived by professionals who manage data-related infrastructure within their organizations. The survey was targeted at ‘data managers’ from diverse industries and company sizes. The survey revealed some interesting trends:

• 30% of companies are looking at hybrid (cloud + data centre) hosting services for data management
• IT Infrastructure monitoring, assessment and design are top services that IT professionals are keen to outsource
• Top priorities of IT professionals are to bring in operational efficiencies and cost savings to their data centres, data compression and improving power usage effectiveness, and technology improvements
• Operator credibility/track record and future scalability are the top criteria in data centre selection
• 58% of IT professionals feel colocation is better than captive data centres
• 72% of professionals have witnessed data surges in their organizations post-Covid-19
• 64% of organizations are looking to power their DCs by more than 60% clean power in the next 2 years
• 67% of professionals find it challenging to recruit and retain quality talent in the IT domain
• Streamlining power procurement regulations and creation of large DC parks key Government support envisaged by the DC industry

Also Read: Data Centre industry in India to cross 1.3 GW capacity, grow 2.4X by 2024: JLL

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Capacity expansion by existing and new players in the Data Centre (DC) industry is expected to result in an additional capacity of 804 MW during 2022-2024, translating to 34% CAGR for the period, according to JLL’s report India’s Data Centre report card 2021.   A notable feature of this supply growth has been that a large share of it has been pre-committed by hyperscale and is expected to become operational in the next three years.

Mumbai and Chennai to lead in capacity expansion

Mumbai and Chennai are expected to witness higher growth owing to their infrastructure advantages. As a result, both cities will account for 68% of the total capacity in 2024. The addition of a new cable landing that would connect these cities, going forward, would also lead to higher bandwidth. However, landlocked locations like NCR-Delhi would also see growth in capacity addition due to government-led digital initiatives and data demand. Proactive state policies, meanwhile, are creating Hyderabad into an emerging location for hyperscale cloud players.

Real Estate demand to the tune of 9.7 million sq. ft is expected

The Indian DC industry is expected to add 804 MW capacity from 2022-to 2024. This would mean the creation of 9.7 million sq ft of real estate space for this new capacity across India’s leading cities. Since DC construction is driven by the design specifications of each operator, the nature of this capacity addition would differ across DC hubs in the country. However, DC hubs in India are most competitive in terms of land, construction, mechanical, electrical and plumbing costs.

“Owing to its high share of capacity addition, Mumbai is expected to create demand for 6.18 million sq ft, going forward. The comparatively high land cost of the city vis-à-vis other DC hubs will lead to a higher outlay of USD 3.3 billion for setting up data centres in the city. As Chennai has similar advantages, it would follow with 2.03 million sq ft of real estate space addition at an investment of USD 1 billion,” said Rachit Mohan, Head, Data Centre Advisory, India, JLL

The strong demand growth has been matched by a supply addition of 119 MW during the year, registering a growth of 23% over 2020. Mumbai, Pune, and Chennai together accounted for 83% of the total supply during 2021. DC operators have been following a land banking strategy to provide scalable and seamless options for hyperscale cloud players. In the Mumbai region, the Navi-Mumbai suburb has emerged as a preferred location due to its high-capacity power station, developed territorial cable connectivity, and availability of land at a lower cost than the mainland. Hyperscale cloud players have been exploring various availability zones to ensure seamless operations. The expected growth in demand is likely to lead to strong capacity addition during 2022-2024.

The year that was

The demand momentum for the Data Centres (DC) that picked up during 2020 has gained pace, with an estimated absorption of 116 MW during 2021—a 14% Year-on-Year (Y-o-Y) Hyperscale cloud players accounted for 69% of this absorption, as pre-committed capacities were delivered during the year. Hyperscale cloud allows businesses to expand their IT infrastructure based on its demand. Mumbai accounted for 53% of the total absorption as the preferred location of leading cloud players. The sector’s three basic conditions of power supply, connectivity and customer base are amply provided by the city, making it the default location of DC operators. Pune accounted for 21% of the total absorption, followed by Chennai at 15%. The need to diversify across regions, as well as the emergence of strategic locations and favorable regulatory policies, is leading to an expansion trend across India’s key DC hubs.

“Demand picked up in the second half of 2021 in India’s key markets, including Mumbai. In fact, the total absorption in the second half of the year increased by 49% over the first half. In Mumbai alone, demand increased by a strong 71% in the second half of 2021, reaching 62 MW for the year. This demand was led primarily by cloud players and BFSI firms expanding their footprints. The DC market is standing at the threshold of high growth as hyper-scale cloud players aggressively expand their capacities for a slice of the growth pie. The expected boom in data consumption with the convergence of various technologies has also led to various players building up capacities,” Dr. Samantak Das, Chief Economist and Head of Research & REIS at JLL India

“This high growth is currently being matched by ambitious growth plans of colocation DC operators, leading to a capacity addition of 119 MW during the year. The untapped potential from other sectors like agriculture, logistics, finance and automotive also promises a high growth trajectory for data usage in the years ahead,” he added.

Also Read: Platform funds gain prominence with USD 1.9 billion announced during Q1 2022

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By Varun Singh

Office lease renewals that in pipeline in Bangalore, Gurugram, Mumbai, Noida, Pune and Chennai is the highest in 2021 at approx. 90 Mn sq ft space when compared to 2022 and 2023

Industry data and ANAROCK Research reveals that over 7,400 office leases spanning approx. 90 Mn sq ft area will come up for renewal in 2021 across the top 6 commercial real estate hubs – Bengaluru, Mumbai, Pune, Chennai, Gurugram and Noida.

Data further reveals that 2021 has the highest lease expiry pipeline when compared to the next two years – 2022 and 2023. Year 2022 will see nearly 7,000 leases for approx. 78 Mn sq ft come up for renewal, and approx..4,200 leases for over 55 Mn sq ft in 2023.

Of the approx. 7,400 office leases expiring in 2021, Mumbai has the highest share at about 44%, followed by Pune with a 17% share.

These two cities have been among the worst-affected by the second wave. The impact on leasing activity there over the year bears watching.

The total number of office leases coming up for renewal in 2021 account for 90 Mn sq. ft. area. Interestingly, in terms of area, Bengaluru has the largest share at about 37%, with Mumbai coming in a distant second with a share of about 19%.

Prashant Thakur, Director & Head – Research, ANAROCK Property Consultants says, “The office market has been under strain since the pandemic came in. However, the IT/ITeS sectors have been on a hiring spree in 2020 and 2021 due to massive business accruals. To accommodate these employees in a future when we see a gradual return of employees and adoption of hybrid workplace practices by Infotech giants, office space demand will grow. Office demand also is expected to gather momentum from 2022 in the wake of robust hiring by large corporates. These big corporates will definitely renew their leases, though some of the smaller companies may consider rationalizing space.”

Thakur further added, “The leases coming up for renewal in 2021 were entered into at much lower rentals – at rates that prevailed 3 to 5 years ago – since office leases are usually signed for the long-term. There is some room for rental escalation in many of these leases.”

Important Points

• Lease renewal pipeline in Bangalore, Gurugram, Mumbai, Noida, Pune & Chennai highest in 2021 at approx. 90 Mn sq ft space when compared to 2022 & 2023
• These leases were entered into at lower rental rates of 3-5 years ago; with office leases usually signed for long-term, there is some room for upward revisions
• Office market may pick up pace from 2022 in wake of robust hiring by large corporates; large corporates likely to renew their leases, smaller companies may consider rationalizing space
• Of approx. 7,400 leases up for renewal in 2021, Mumbai has highest share at 44%, followed by Pune with 17% share; both cities severely hit by the pandemic
• Of approx. 90 Mn sq ft area leases up for renewal in 2021, IT capital Bengaluru has the highest share at 37%, followed by Mumbai with 19% share
• Year 2022 to see approx. 7,000 leases accounting for approx. 78 Mn sq ft up for renewal; in 2023 it is approx. 4,200 leases for over 55 Mn sq ft

Key Trends Amid the 2nd Wave

The second wave in India is far more excruciating than the first, and some companies are once again in wait-and watch mode with their real estate decisions. Leasing activity has begun to tame down. This is also validated by the fact that average vacancy levels in Grade A office space across the top 7 cities is up again, breaching the 15% mark. Rising Covid-19 cases in cities like MMR and Bengaluru – the markets with highest commercial demand – and stringent curfew restrictions are cause for concern.

However, Mumbai and Pune are already beginning to see a decline in daily cases. Meanwhile, major IT/ITeS companies are hiring in bulk to fulfil the surge in work orders and have a healthy pipeline for the current year as well. Recent ANAROCK Research revealed that the top four Indian IT/ITeS firms – TCS, Infosys, HCL and Wipro – alone hired approx. 42,000 employees in the first nine months of FY 2021. Also, multinational majors Cognizant and Capgemini hired nearly 39,500 employees in CY 2020, with bulk hiring plans for CY 2021. They plan to hire ~23,000 and ~30,000 employees respectively in the CY 2021.

Many other IT firms are on a hiring spree amid acceleration in their overall business post the pandemic. This eventually bodes well for overall office space demand in 2022 and 2023, when we may see gradual return of normalcy coupled with the newly added workforce. The IT/ITeS sectors are among the prime drivers of overall leasing activity in the top cities. Bulk hiring by these firms will influence demand for large quality office spaces.

Also Read: High Street Rentals Hit By Pandemic

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