Next Growth Frontier: Scale, strategy and the next phase of data centre evolution

Data centres, regarded as a niche asset class, have evolved into a core enabler of India’s digital economy. As of June 2025, India’s data centre capacity stands at approximately 1.3 GW across key markets. This capacity is projected to exceed 4.3 GW by 2030, marking a 3.3x growth over the next five years, driven by substantial capital investments.

What was once a phase of rapid expansion is now maturing into a deliberate, strategy-led growth cycle, supported by long-term capital, policy stability and ecosystem alignment. For the real estate sector, this transformation extends beyond building infrastructure. It is redefining how land, energy and design converge to build the foundations of the digital economy.

Leading data centre hubs, Mumbai and Chennai hold a market share of 46 per cent and 15 per cent respectively. Both markets are anchored by subsea cable connectivity, robust fibre networks and mature cloud ecosystems. Delhi NCR and Hyderabad each account for 11 per cent of the overall market. Pune, Bengaluru and Kolkata follow with 9 per cent, 6 per cent and 1 per cent respectively.

Co-location continues to drive momentum while hyperscale self-build data centres rapidly gain ground

With around 92 per cent of India’s data centre market being filled with digital infra providers, both global and domestic, the industry’s growing reliance on shared infrastructure is increasingly evident, along with the strategic importance of scalable, cost-efficient solutions. India remains one of the lowest-cost destinations globally for data centre development as the construction cost to build a Tier 3 or Tier 4 facility in the country is approximately $5.6 million-$8.6 million which is significantly ­lower than that in several markets such as ­Australia, Japan, Malaysia and Singapore.

India’s data centre market reflects an increasingly competitive operator landscape, which comprises global pure-play data centre infrastructure providers, mature domestic firms, telecom spin-offs and conglomerate-backed entities, resulting in a complex and rapidly evolving ecosystem.

Meanwhile, self-built data centres, which represent less than 10 per cent of the market, are gaining significant traction as hyperscalers are developing new data centre campuses, often exceeding 50 MW each. These facilities are expected to capture a higher market share by 2030. ­Hyperscale, self-built data centres are highly concentrated in Hyderabad, with a smaller share in Mumbai. They are looking to expand to several other cities such as Visakhapatnam  and Delhi.

Tier 2 cities and edge data centres: Expanding the geography of growth

New locations for data centres are becoming important as competition for strategic land and power corridors intensifies, and early positioning will determine long-term value. While metros continue to anchor capacity, Tier 2 and Tier 3 cities are emerging as the next growth frontier. The expansion of data centre capacity in Tier 2 and Tier 3 cities is largely driven by edge data centres (EDCs), which support edge computing. EDCs are data centres with a smaller IT load cap­acity, typically 2 MW to 5 MW, though they are now reaching capacities of up to 20 MW. These data centres are closer to end-users or devices, reducing data transit time and latency. Applications that require real-time processing or minimal latency benefit from local data handling. The growth of EDCs will be driven by the increasing demand for low-latency applications and the widespread roll-out of 5G technology, enabling faster, more responsive digital experiences across regional and distributed markets.

Key growth drivers for edge computing include proliferation of 5G, internet of things (IoT) and enterprise digitalisation, low-latency computing needs for regional users, rising data localisation and residency mandates. Generation Z, the first true digital natives, are driving demand for low-­latency, real-time performance and always-on digital experiences, further increasing the need for scalable and high-performance data centre infrastructure. As hyperconnected consumers and content creators, they are fuelling data growth, cloud adoption and real-time compute demand. Their early adoption of artificial intelligence (AI), augmented reality/virtual reality and decentralised platforms, combined with the rise of digital entertainment, e-commerce and government digital initiatives, is intensifying the push for resilient, low-latency data centre capacity.

The next wave of opportunity will emerge from developers that secure fibre-ready, power-available land in Tier 2 and above-tier cities, positioning themselves ahead of the demand curve.

Designing for density, efficiency and sustainability

India’s transformation into a compute-driven, AI-enabled economy depends on the rapid creation of modern, scalable and energy-resilient data centre infrastructure. Next-generation data centres are being engineered for higher performance and high-density power, creating vendor-neutral environments for diverse AI workloads while reducing environmental impact. Average power density per rack has surged from 8-10 kW to 25-30 kW, driven by AI and GPU-heavy computing. There are also instances in the country where customer requirements for rack density are nearly 120 kW per rack. High rack density translates to a more evolved cooling technology. Cooling technologies are advancing towards liquid-based, liquid immersion cooling, direct-to-chip cooling, rear door heat exchangers and modular thermal systems.

Currently, the data centre industry’s power consumption is less than 0.5 per cent of the power generation capacity of India. The availability of renewable energy in India, which is around 46 per cent of the total electricity generation capacity, has led to the the growth of data centres that run on green energy rather than conventional energy sources. Green-certified data centre capacity has exhibited robust growth, nearly doubling since 2020.

Nuclear, tidal and hydrogen energy are emerging as next-generation solutions for sustainable, reliable data centre power. Small modular reactors provide stable, zero-carbon baseload energy; tidal power offers predictable, low-impact generation for coastal sites; and green hydrogen is evolving as a clean alternative to diesel for long-duration backup. Together, they define the future of resilient, carbon-free data centre energy strategies. Such trends reflect the sector’s increasing prioritisation of sustainability commitments, energy efficiency imperatives and regulatory compliance as critical determinants of competitive differentiation and long-term value creation.

There are several strategic and design imperatives for developing data centres that utilise renewable energy. These include site location decisions to ensure proximity to renewable energy and resilient grid networks, and blended power models, determining the optimal energy mix of non-­renewable and renewable energy sources such as solar, wind and tidal that will power the data centre. The integration of battery storage, microgrids and carbon-neutral design is becoming increasingly important for data centres as sustainability is no longer an option, but a baseline requirement for market entry and asset valuation.

Real estate leaders accelerate their entry into India’s data centre ecosystem

Building and operating data centres requires coordinated efforts across land acquisition, power availability, connectivity, cooling, engineering and digital infrastructure design. Real estate players in India are making a rapid foray into the ecosystem. Several partnerships have already been forged between real estate developers, investment funds and data centre operators to align capital with infrastructure demand and adopt a long-term development vision. Such partnerships will define the next phase of leadership in this sector.

The most forward-looking data centre developers are shifting from viewing facilities as “powered real estate” to building integrated digital infrastructure hubs where compute, cloud and connectivity converge. These developments go beyond construction; they are strategic investments in India’s digital capacity, energy resilience and technological sovereignty. By aligning site choices, renewable power and scalable designs with hyperscaler and enterprise needs, India is creating the foundation for next-generation innovation, from AI workloads to 5G and beyond.

While India’s data centre industry is expanding at a significantly faster pace than most countries, it still has considerable ground to cover. Compared to the US, the Indian market’s per capita infrastructure capacity is very low. Currently, the IT infrastructure density of India is much lower than that of the US. As of 2024, for every 10 million people, India offers just 9 MW of data centre capacity, compared to 608 MW in the US. With collaborative models, long-term capital and advanced technology adoption, India has the opportunity to close the gap with mature markets and position itself as a globally competitive digital infrastructure hub.