India’s data centres to drive $10b investment over next three years

V Nagarajan

India’s data centre stock is likely to double to 23 million sq. ft, translating to a total investment potential of $10 billion over the next three years across the top 7 cities, according to the Colliers’ latest report released at the second edition of CII Conference held in Mumbai recently.

Significant expansion of the Indian economy by 2047 will be powered by real estate. A multifold economic expansion will boost demand across all the asset classes which will grow at a multiplier rate to accommodate the growing needs of the economy and consumption needs of the individuals.

In recent years, the global real estate sector has witnessed a paradigm shift in its approach to sustainability, with the growing recognition of the environmental, social, and governance (ESG) factors.

Environmental, social, and governance (ESG) standards have emerged as crucial factors for analysing the long-term viability and ethical practices of businesses in a variety of industries, including real estate,” said Dr K Nandakumar, Chairman, CII Maharashtra State Council and CMD, Chemtrols Industries.

Driven by quantum growth in data consumption and cloud adoption, data centres have witnessed significant growth post pandemic with total capacity growing two-fold since 2020.

As of August, the data centre capacity across the top seven cities stands at 819 MW, spread across 11.0 million sq. feet. Led by exponential increase in data consumption, improving regulatory framework and robust investments in the sector, the data centre capacity is likely to double up faster in the next phase of growth, crossing 1,800 MW by 2026.

“Indian data centre market propelled by tail winds of digitisation, on premise to colocation shift, data localisation and generative AI demand will see a quantum leap in the construction, delivery and absorption of data centre space.”

“Data centre as an asset class is proving to be a play with high yield and lower risk once stabilised, with sticky customers which enables patient institutional capital to write larger cheques,” said Ramaiya Kapoor, managing director, Data Centre, Colliers, India. Tier I cities see accelerated growth; Tier II cities likely to see steady ascent.

Chennai, Bengaluru and Delhi-NCR are already relatively established markets, while Kolkata remains an emerging hub catering to the zonal data requirements of the region.

In the next three years, Mumbai is expected to account for about half of the new additions, owing to the presence of submarine cable connectivity, landing stations and internet exchanges.

Along with Mumbai, Chennai and Hyderabad are also likely to witness increased growth owing to strong support infrastructure and encouraging regulatory framework.

While Tier I cities are preferred locations for data centre expansion, Tier-II cities are also witnessing steady growth.

A growing recognition of the significance of India’s data centres as lucrative high-yield options is quite evident, especially amongst foreign investors and is expected to gain further momentum in the coming years, as the market grows broader. Since 2020, the sector has received about $1.1 billion of institutional inflows, 93 per cent of which were from foreign investors.

Global hyperscalers are viewing India as a prime market for expansion to capitalise on the increasing demand from cloud usage. 2023 has seen landmark pre-commitments from global hyperscalers in India’s data centre space. As a cost optimisation and revenue–boosting strategy, hyperscalers are looking to build their own Built to Suit (BTS) data centre facilities in India.

Since data centres are typically associated with high energy consumption, there is ample room for more sustainable elements to be adopted. Going forward, energy efficiency will play a critical role in data centre demand-supply dynamics.

I hold three residential properties jointly with my wife and we intend selling two of them to reinvest in a bigger flat. Please suggest how to minimise capital gains tax? Deshmukh, Sharjah.

Assuming both of you have undivided rights, long-term capital gains will be payable if they are held for a period of two years or more. The liability will depend upon the ratio of individual holding. Each one of you will have to individually compute the liability.

The liability for payment of long-term capital gains tax. You can reinvest in a new property availing the deduction and complying with the stipulations under section 54.

I have inherited ancestral property in India. Can I gift it to my relative? Are there restrictions? Kindly clarify. A Neelakantan, Dubai.

If it is ancestral property, heirs get the right by birth, depending on the religion they belong to in India. The property can be passed on by reorganisation, by way of family settlement or a division in case of a HUF (Hindu Undivided Family). If you want to gift your share from ancestral property, you can do it without any restrictions as it is like your self-earned property.