India data centres likely to reach 1,700 MW capacity, attract $5 billion by 2025

MUMBAI: Data centers in India are expected to lead the next wave of real assets investments by growing at a compounded annual growth rate (CAGR) of nearly 40% to reach a capacity of around 1,700 MW by 2025, on the back of investments worth $5 billion, said an Avendus Capital report.

The Indian data centre market has grown 48% over the last three years from 540 MW in 2019 to over 800 MW of installed capacity in 2022. Currently, developers are addressing a pipeline of over 3,000 MW, effectively 300 MW per annum over the next 10 years, with a capex requirement of $23 billion.

The next leg of growth, according to Avendus Capital, 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.

“We are very bullish about the opportunity that lies in the data centres market. 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,” said Prateek Jhawar, MD and Head, Infrastructure & Real Assets Investment Banking, Avendus Capital.

He expects real estate developers and investors to evaluate the option of converting their underlying portfolio into Real Estate Investment Trusts (REITs), creating a perpetual yield income, much like their global counterparts.

Top seven cities in India including Mumbai, Chennai, Hyderabad, Kolkata and Delhi contribute around 92% of the total data centers capacity in India. Mumbai and Chennai are leading the race given the inherent advantage of an advanced dense wet cable ecosystem offering best global latencies.

According to Vaibhav Garg, Vice President, Infrastructure & Real Assets Investment Banking, Avendus Capital, 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.“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,” Garg added.

Investors and developers worldwide are actively looking to invest in the emerging Indian data center market, which offers promising growth opportunities with new markets being created and campuses rapidly expanding in key cities like Mumbai and Chennai.

The surge in over-the-top (OTT) video streaming, online gaming, augmented reality, and digital commerce propelled by 5G is projected to increase data consumption, resulting in a corresponding expansion of data centers.

This rising preference for India among global data centre majors is attributed to the data localisation norms and the government’s proposed new data centre policy aimed at simplifying the rules. The new data centre policy is also expected to provide necessary clearances and infrastructure in a time-bound manner.

Global majors like Google, Microsoft and Amazon have already started setting up their hyperscale data centers in India.



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