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Data Center To Double By 2023 To About 20 Mn Sq Feet: Colliers Insights

The thrust on Data Centers is led by increasing digitization, and growing adoption of cloud and IoT devices says the report by Colliers

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India’s co-location* data center (DC) stock is likely to more than double by 2023 to about 20 million sq feet, from the current 9.0 million sq feet. The thrust on DCs is led by increasing digitization, and the growing adoption of cloud and IoT devices. Further, Indian government regulations to localize the data and Reserve Bank of India’s aim to increase digital transactions by 10X are strongly driving the demand for DC assets in Indian real estate.

Colliers notes that India currently has about 1.2 megawatts per user of co-location DC capacity as compared to Europe’s 19.1 MW per user DC capacity, providing a huge opportunity for DC operators and investors in the country.

“There is no doubt on India’s data storage demand which continues to expand exponentially. With the continuing clamour of Investors for stable assets in India, Data Center business in India is likely to provide steadiness and diversification in the income profile. The ecosystem for the business in India is fast evolving with experienced operators’ entry in the market, large developers building world-class assets and supported by proactive legislative support. The Data Center business is likely to provide investors focused on India across Infrastructure, Technology and Real Estate a unique Investment opportunity over the next few years”, said Piyush Gupta, Managing Director, Capital Markets & Investment Services at Colliers International India.

Between January and August 2020, Colliers noted that DCs attracted investments of about USD396 million (INR29 billion), accounting for about 46% of the total private equity investments in Indian real estate. The inflow was led by a deal each in Delhi and Mumbai. This interest in DCs resonates with Colliers April 2019 survey ‘Investors in India look to Office, DCs,’ where about 63% of the respondents preferred DCs as their first choice among newer avenues for investment.

Mumbai leads DC stock, mainly due to its position as the financial capital of India, the presence of under-sea submarine cables, favourable government policies.

“Mumbai has the largest DC market in India due in part to its position as India’s financial capital, and the accompanying data volume, as well as its proximity to the under-sea submarine cables and incentives from the government. We believe that MAHAPE, the entire belt from Mumbai to Pune( Pune being an IT hub), along with Belapur, Thane-Belapaur Road, and Panvel, are locations worth considering for setting up co-location DC, led by the availability of land, new airport, trans harbour link, and access to under-sea submarine cables”, said Anil Dwivedi, Director, Project Management (Mid-India) at Colliers International.

“Though data was globally recognized as the new oil and a valuable resource more than a decade ago, the ongoing pandemic has made us realize its importance in India. As more and more daily operations are carried out digitally, the traffic and consumption of data is rising exponentially, providing a thrust to the need for colocation DCs. We expect this asset class to become an extremely important asset class in the next few years,” added Siddhart Goel, Senior Director, Research, Colliers International India.

Co-location DCs to get a boost from healthcare and pharmaceuticals, edTech, gaming firms.

Colliers feels that co-location DCs will also target growing sectors including healthcare and pharmaceuticals, edTech, gaming, over-the-top entertainment, urban mobility, and agricultural firms as the upcoming 5G network is expected to open new opportunities for consumers and enterprises. 5G-enabled digitalization revenues in India are expected to touch USD17 bn by 2030 impacting healthcare and manufacturing industries.

The Colliers Capital Markets & Investment Services team projects that a prospective co-location data center operator can achieve break-even in about six years, considering the costs for inputs such as land required, building and equipment like power backup, transformers, racks and other operational expenditure.

Considering the customer stickiness in this business, as well as high barriers to entry, Colliers believes that DCs are a long-term play for investors looking for long-term stabilized net yields of more than 15% per annum. We recommend that developers with a pan-India or strong regional presence either partner with established DC operators or build in-house capabilities. Furthermore, a strong DC portfolio can also be converted into an attractive REIT offering in the future, which can be seen from countries in the APAC region such as Singapore, China and Australia though the US has the largest number of such REITs.