DCs emerging as a real estate asset class

Aug 04, 2020
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New Delhi, Aug 4 (PTI) Data centres are emerging as an alternative real estate asset class and many developers are venturing into this segment that has a potential to generate 10-14 per cent rental yield annually, according to property consultant Anarock.


At present, data centres occupy 75 lakh sq ft space across top 8 cities and more than 100 lakh sq ft new space is expected to be added over the next 2-3 years.


Increased usage of digital platforms after the outbreak of COVID-19 pandemic and the government''s effort to make data localisation mandatory are good signs for the growth of this asset class.


Adani, Hiranandani Group, Salarpuria Sattva etc. have massive investment plans for building data centres in India, the consultant said.


"Currently, data centres in the top 8 cities occupy 7.5 mn sq. ft. space and an additional 10 mn sq. ft. space is likely to be added over the next 2-3 years," said Shobhit Agarwal, MD and CEO - ANAROCK Capital, part of Anarock group.


"Immediately after India went into a lockdown mode due to COVID-19, there was a 25-35 per cent increase in data centre capacity usage as companies began to overhaul their digital infrastructure to deal with the new work environment," he said.


The massive digital push initiated by the COVID-19 pandemic has been lucrative for data centres, which can deliver an annual rental yield of 10-14 per cent, it said.


The key cities leading demand for data centres include Mumbai, Chennai, Bengaluru and Hyderabad, among others.


"The pandemic has been a massive catalyst for digital adoption across the spectrum. Work-from-home, online education, video-based medical consultations, a huge increase in e-commerce and business-related video conferencing and webinars are increasing the demand for data centres," said Agarwal.


Furthermore, he said the government's move to make data localisation mandatory ensures a promising future for data centres in the country.


As per industry estimates, the data centre outsourcing market in India is worth more than USD 2 billion and is projected to grow at 25 per cent CAGR to reach USD 5 billion by fiscal year 2023-24.


"In fact, data centres are emerging as an alternative real estate asset class with huge potential, and leading real estate developers are zeroing in on this opportunity to reap superior returns from early investments," the consultant said.


Until a few years ago, only a handful of data centre operators such as NTT-Netmagic, CtrlS and STT GDC operated in this space, the report said.


"Interestingly, these facilities were never seen as potential real estate assets, but rather as a complex mesh of wires providing connectivity to various internet users. Also, cloud computing was not yet a 'thing' in India. As such, the requirement for data centres was limited," it added.


However, the consultant said that there has been a massive shift in perception now.


"Developers and investors are looking for new opportunities to diversify from the traditional business of residential, commercial and retail assets. Enabled by India's rapid transformation into a digital nation, data centres are set to become one of the most promising sunrise sectors heading for a rapid boom - powered by high growth rates and plentiful venture capital funding," Anarock said.


The consultant listed various factors that would help in growth of this segment. These are young tech savvy population, large mobile telephone subscriber base, rising number of internet users, rapid growth in e-commerce, smart cities mission, startup ecosystem and enabling policy environment.


The future growth of various industries relies heavily on digitisation, and a seamless transformation into Digital India is only possible with the creation of more data centres, Anarock said. PTI MJH SHW SHW