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Data centres have witnessed an upsurge of end-users during the pandemic from different segments, including e-commerce, online banking, entertainment, education and OTT. (istockphoto)
Data centres have witnessed an upsurge of end-users during the pandemic from different segments, including e-commerce, online banking, entertainment, education and OTT. (istockphoto)

Data centres hold promise for commercial realty demand to bounce back in 2021

  • Data centres now serve a wider role owing to the rise of smart devices coupled with high data consumption in India
  • Data centre investments can deliver an annual rental yield of 10-14% for developers, suggest estimates by consultants

MUMBAI: India’s data centre business is expected to see an explosion of demand, come 2021, according to several real estate consultants. The metro cities of Mumbai, Chennai, and Hyderabad are expected to host this surge in commercial real estate demand needed to power the information highways in these cities.

“The rise in usage of smart devices, coupled with increasing amounts of data consumption post Covid-19, has led to a surge in data storage and processing requirements in India, which has further widened the role of data centres," Anshuman Magazine, chairman and chief executive office—India, South East Asia, Middle East & Africa, CBRE, said. “We believe that occupier demand for data storage is likely to increase in the coming quarters, with the country’s data centre capacity expected to cross 600 MW during 2020-21. Supply addition in the coming years is expected to be dominated by the cities of Mumbai, Chennai, Hyderabad and Delhi-NCR."

Originally seen as a segment of commercial real estate where the primary activity was to build and lease buildings to corporates to store their data, the pandemic has seen an upsurge of end-users from different segments, including e-commerce, online banking, entertainment, education and OTT (over the top digital entertainment). For developers, the investment in the segment can deliver an annual rental yield of 10-14%, according to estimates by consultants. Sify, NTT, Adani and Bharti Airtel are already building projects or have announced investments in the sector. In July, the Hiranandani group inaugurated India’s largest data center building Yotta NM1 at Navi Mumbai. The group’s Yotta Infrastructure will be investing over $2 billion in the next seven years in building self-sustaining hyperscale data centre parks in Navi Mumbai, Chennai and Delhi, Darshan Hiranandani of the eponymous real estate group said.

As per industry estimates, the data centre outsourcing market in India is worth more than $2 billion and is projected to grow at 25% CAGR to reach $5 billion by FY 2023-24.

Data centres house computing infrastructure like servers, routers, switches, and firewalls, apart from supporting paraphernalia like backup equipment, fire suppression facilities and air conditioning. With power being the single biggest cost factor in running a data center, developers are seeking environment-friendly sources that can be built into the project blueprint. The Yotta project, for instance, will initially depend on renewables and gas-based combined heat and power generation. I will eventually migrate to run completely on renewable, whether offsite through solar and wind coupled with on-site hydrogen-based co-generation and fuel cells in the future.

Shobhit Agarwal, managing director and chief executive officer, Anarock Capital, said that while currently data centres in the top eight cities occupy 7.5 million sq. ft. space, an additional 10 million sq. ft. space is likely to be added over the next 2-3 years. “Immediately after India went into a lockdown mode due to Covid-19, there was a 25-35% increase in data centre capacity usage as companies began to overhaul their digital infrastructure to deal with the new work environment."

“The pandemic has been a massive catalyst for digital adoption across the spectrum," says Agarwal. “Work-from-home compulsions, online education, video-based medical consultations, a huge increase in ecommerce and business-related video conferencing and webinars are increasing the demand for data centres. Furthermore, the government’s move to make data localization mandatory ensures a promising future for data centres in the country."

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