JLL projects data centres to drive commercial realty demand

JLL projects data centres to drive commercial realty demand
JLL projects data centres to drive commercial realty demand

by 5paisa Research Team Last Updated: Dec 27, 2022 - 05:33 pm 5.4k Views

When big names like Adani start investing heavily in data centres, one can be sure that this is a business with a huge potential. Now there is official confirmation from one of the largest real estate research company, Jones Lang LaSalle (JLL). It expects the data centre growth to fuel realty demand on the commercial side. With the likes of CapitaLand India Trust also announcing a mega Rs. 1,940 crore plan to set up its third data centre in Chennai, India may have just scratched the surface of the massive potential for data centres as a fuel for real estate demand. Of course, the demand this time around is going to be a lot more selective and a lot more bandwidth driven, but we will come back to that later.

As per the recent report by JLL, the demand for real estate from the data centre industry could be the much needed fuel for real estate demand in the next few years. Now data centres are measured in terms of MW, which is using the power consumption as a proxy for data centre capacity and demand. India is expected to add 681 megawatt (MW) capacity worth of data centres by the end of the year 2024. This would result in a doubling of capacity of data centres just two years to 1,318 MW. However, that is not just the point. The real cream lies in the fact that this growth in data centre capacity will pre-suppose an additional need for 7.8 million SFT of real estate space in terms of commercial space.

As year 2022 comes to a close, there has already been substantial traction in the data centre related real estate expansion. The estimated absorption in the year was in the range of 150-170 MW, but that was largely on the back of delivery of pre-committed supply to hyper scale cloud service providers (CSP). What we are likely to see in 2023 and 2024 could be much bigger and the biggest thrust to data centres seen till date. Obviously, colocation operators are currently scaling up construction in a big way to meet delivery targets. In some cases, the time was so crunched that operators even resorted to retrofitting existing buildings to reduce time to delivery. However, 2023 and 2024 could be lot more exciting.

One of the big challenges currently is the supply part of it. Most of the supply is largely concentrated in Mumbai due to practical considerations lie submarine cable connectivity, power availability and a large user market that is captive. Even in the coming two years, it is estimated that Mumbai would account for a whopping 57% of the new supply followed by Chennai at 25%. A key driver for data centres will be the effort to make companies resilient amidst uncertainty. Data centres in India are also likely to get a leg up from impact of 5G rollout, personal data protection legislation and various investment incentives.

There are several marquee names who are already investing in this business. Look at one of the leading private equity investors, Blackstone. They have already announced the start of data centre business in Asia based out of India. It plans to scale up its data centre business to 600 MW over next 2 years and will have presence across Mumbai, Chennai, Delhi-NCR, Hyderabad and Pune. Blackstone is not alone. NTT of Japan will expand its data centre footprint to 12 locations in India entailing demand for more than 2.50 million SFT and 220 MW equivalent of power. Yotta Infra has 160 MW data centre capacity. Nxtra, owned by Bharti Airtel will invest Rs. 5,000 crore by 2025 to triple data centre capacity to 400 MW.

Two of the most tech savvy business groups in India, Reliance and Adani groups obviously cannot be too far behind. Reliance Jio plans for a 200 MW data centre campus in Delhi NCR entailing an investment outlay of with a $950-million. Adani group has already announced close to $9 billion in investment in data centres over the next 8-10 years. With the salivating possibility of converting these facilities into REITS, big names like Everstone and Brookfield are not too far behind. In short, it will be exciting times in the coming two to three years. The power crisis in Europe will drive a lot more of data centre business to India. Not to forget that the 5G network will increase speed ten-fold and create the perfect recipe.

The big boost for the data centre business may come from better technological infrastructure in India. The rise of smart devices will result in significant rise in demand for data and let us not forget that 5G would account for almost 40% of India’s mobile subscriptions by 2027. If you even consider an average data usage of 50 GB per user per month, the impact on data centre demand would be humongous.

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