The Indian data centre (DC) market is growing at a compound annual growth rate (CAGR) of around 40 percent and is expected to attract investments of about $5 billion by 2025. This will drive the next wave of real asset investments with a target capacity of 1,700 MW to be built by 2025, according to a report by Avendus Capital.
This comes a day after AWS already announced a $12.7 billion investment in India to expand its cloud infrastructure by 2030. Earlier this year, Microsoft pledged another Rs. 16,000 crore to set up data centres in Hyderabad. Apart from this, NTT and Google continue to expand capacity in the country.
Over the last three years, the Indian data centre market grew by over 48 percent from 540 MW in 2019 to over 800 MW of installed capacity in 2022 as demand for digital transformation across businesses took off amidst the pandemic.
Among cities, Mumbai currently accounts for around 48 percent of the country’s total data centre capacity of 800 MW with use cases like submarine landing stations and reliable power capacity. Mumbai has a total capacity of about 380 MW, with another 530 MW under construction driven by cloud players aggressively absorbing space in the city. This is followed by Bengaluru with 110 MW total capacity and 70 MW under construction. Most of the demand here is coming from the startups and ecommerce companies.
Seven cities contribute 92 percent of the total capacity in India. Delhi, Chennai, Hyderabad and Kolkata have the largest total DC capacity currently under construction.
“Approximately, 25% of total additional capacity over the next five years in India is likely to be in Mumbai. Many hyperscale operators are likely to base operations in Mumbai,” the report said.
Prateek Jhawar, Managing Director and Head, Infrastructure & Real Assets Investment Banking, Avendus Capital said, “Global investors are most likely to partner with domestic players, owing to their access to land banks, ability to procure regulatory approvals, as well as their civil, mechanical and electrical fit-out capabilities.”
He added, "We expect real estate developers and investors to evaluate the option of converting their underlying portfolio into REITs, creating perpetual yield income, much like their global counterparts.”
“The Data Centre market is highly underpenetrated with a vast majority of hyper-scalers and enterprise customers being under-served. The returns profile of the industry is expected to gradually shift towards commercial, industrial and other real assets space,” Vaibhav Garg, Vice President, Infrastructure & Real Assets Investment Banking, Avendus Capital added.
Garg said, “As hyperscale developers are already generating 30%+ IRR, it offers room for compression. The sector is expected to attract the attention of multiple categories of investors across the value chain, including growth capital, buyout, private equity, real estate and infrastructure investors.”
At present, developers are seeing a pipeline of over 3,000 MW i.e. 300 MW per annum over the next 10 years, with a capex requirement of $23 billion. “The next leg of growth will be driven by the exponential increase in data consumption & storage, governmental thrust on data localisation and the need for high bandwidth, following the launch of 5G,” the report said.
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