The data centre industry in India is currently in a dynamic phase, marked by impressive growth and substantial government support. With a promising potential for further expansion, the sector is poised for continued growth in the future.

Industry snapshot

In 2023, the landscape of data centres in India spanned approximately 11 million square feet, which is expected to nearly double, surpassing 23 million square feet, by 2025. Alongside this expansion, the capacity of data centres in India, currently supporting a live IT load of around 800 MW, is anticipated to escalate to over 1.5 GW by 2025.

In addition, India currently boasts approximately 140 third-party colocation data centres. However, a notable rise in this figure is projected, reaching about 180 by 2025.

In terms of regional distribution, as of 2023, Mumbai stood at the forefront, commanding the highest IT supply share of 48 per cent, followed by Bengaluru (12 per cent), Chennai (9 per cent), and Hyderabad and Noida (7 per cent each). However, moving into the future, Navi Mumbai is expected to emerge as the primary hub, encompassing 50 per cent of planned future supply, followed by Chennai (14 per cent), Bengaluru (11 per cent) and Noida (9 per cent).

Growth drivers and industry trends

India’s data centre industry is fuelled by a multitude of factors, propelling its growth trajectory. This growth is primarily driven by government initiatives to promote data localisation and approve the setting up of data centres. Other factors include the large-scale roll-out of 5G technology, the increasing adoption of artificial intelligence (AI) and machine learning (ML) technologies, the rising demand for cloud technology and internet of things, digitalisation across various sectors in India, and the significant growth of e-commerce in the country. Furthermore, both domestic and global investors are increasingly showing interest in India’s data centre asset class, propelling the sector forward.

This transformative phase in India’s data centre industry is marked by technological advancements, evolving business landscapes and shifting consumer expectations. The emerging trends include:

  • AI and ML: AI and ML-driven applications are becoming pivotal in fuelling the demand for data centres. These technologies rely heavily on extensive data processing, storage and computational power, which third-party colocation data centres are well equipped to handle.
  • Focus on green data centres: The emphasis on sustainability is driving the rise of green data centres, prioritisation of renewable energy sources, and steps to enhance operational efficiencies such as liquid cooling and sustainable construction materials to reduce the carbon footprints.
  • Edge computing: Edge computing is gaining prominence, particularly in Tier II cities, spurred by the surge in over-the-top (OTT) platforms and the need for low latency, real-time data processing and enhanced reliability. Cities such as Lucknow, Kochi, Ahmedabad, Bhubaneshwar and Jaipur are witnessing increased interest from colocation data centre operators in setting up edge facilities.
  • Hyperscale data centres: The escalating demand for public cloud services is driving the need for hyperscale data centres, catering to the growing requirements of large-scale computing and storage capabilities.

In addition, the growth in the data centre industry is primarily steered by technology companies; OTT platforms; cloud service providers; public sector undertakings; and banking, financial services and insurance (BFSI) companies.

Challenges in the industry

The data centre sector faces several challenges that require attention. A primary concern is the scarcity of suitable land parcels within favoured micro-markets, hindering optimal data centre placement. Furthermore, the industry grapples with the high costs linked to real estate, alongside concerns related to power availability, further hindering the expansion of the industry.

Addressing these challenges is imperative to sustain the industry’s growth trajectory and ensure its resilience in the face of evolving demand and market dynamics.

Future roadmap

Going ahead, data centres will continue to attract significant interest from investors as an alternative real estate investment option. In addition, the anticipated exponential growth in generative AI is expected to fuel demand for high-density data centre facilities.

Further, there will be a surge in demand from data centre operators for edge computing in Tier II cities in the coming years. Moreover, tech firms, BFSI companies and cloud service providers will remain pivotal drivers of the demand for data centre colocation services. Additionally, operators within the data centre industry are concentrating their efforts, aiming to make

them operational within the next two to three years.

Based on a presentation by Devi Shankar, President, Industrial and Logistics, Data Centre, ANAROCK Capital