Devi Shankar, Executive Director – Capital Markets – Industrial, Logistics & Data Center, ANAROCK Capital

Data centre capacity in India is projected to reach 2.1 GW by 2025 and 2.6 GW by 2027. Furthermore, nearly 600 MW is expected to be added in 2025, marking a significant year-on-year increase and making it a critical year for scaling the data centre market.

This surge in capacity translates to substantial real estate development. Data centre real estate is expected to grow to 31 million square feet by the end of 2025 from 20 million square feet in 2024. Although this is a small share of India’s total office real estate, estimated at 500 million square feet, the high capital investment required makes data centres a highly significant and capex-intensive segment.

Regional concentrations

Mumbai and Chennai account for 70 per cent of the total data centre supply in India. The occupancy rate in Mumbai is pegged at around 81 per cent, largely due to its status as a financial services hub. Roughly 35-40 per cent of the remaining demand comes from banking and financial services based in Mumbai. The growth in supply from 2022 to 2024 has been substantial, with 92 per cent in the Mumbai Metropolitan Region and 340 per cent in Chennai. This growth signifies major cash deployment from data centre operators to build capacities at these two locations in the past three years. Other cities like Hyderabad are also emerging as key spots, currently contributing to only 4 per cent, with many operators already acquiring land there.

The distribution of IT power capacity (MW) is as follows: Mumbai Metropolitan Region at 49 per cent, Chennai at 21 per cent, Noida at 9 per cent, Bengaluru at 8 per cent, Pune at 5 per cent, Hyderabad at 4 per cent, Kolkata at 1 per cent and other Tier 2 cities including Vishakhapatnam, Kochi, Jaipur and Ahmedabad at 3 per cent combined. This excludes capacities from hyperscalers’ own and operating facilities.

Hyperscalers’ self-build commitments

Hyperscalers are increasingly committing to self-build facilities in India. Approximately 440 acres of land is dedicated to these projects, primarily by Google, Microsoft and Amazon. A significant portion of this land, about 69 per cent, is located in Hyderabad, making it a key hub for hyperscale data centre development. Total commitment by hyperscalers for their own facilities is estimated at around $5 billion. Mumbai is another prime location for hyperscaler development, with both Amazon and Google active in land acquisitions.

Market size and profitability 

India’s data centre market is valued at $10 billion, generating $1.2 billion in revenue and $500 million in earnings before interest, taxes, depreciation and amortisation (EBITDA), reflecting a 40 per cent margin. Revenues rose from $150 million in 2014 to $1.2 billion in 2024, a tenfold increase.

Notably, two operators account for 47 per cent of total revenues and another four for around 78 per cent. New entrants have yet to scale, focusing on development. The EBITDA margin has grown from about 25 per cent in 2020 to 40 per cent at present, driven by scale and efficiencies. Although it has plateaued, margins could rise to 50-55 per cent when under-development projects stabilise and the industry matures.

Equity and capital deployment

Furthermore, the total equity commitment stands at $6.8 billion. This figure does not include hyperscaler commitments and including them would raise the total to approximately $10 billion. Of the total commitment, $2.6 billion has been invested through equity and $2.4 billion through debt, as of March 31, 2024. The current debt to equity ratio is 48:52, although this is expected to shift towards 65-70 per cent debt as banks become more confident and aggressive in funding data centre projects. Earlier, banks were hesitant due to a limited understanding of the sector and comparisons with traditional real estate, but that has started to change. Between 2014 and 2024, a total of $4.2 billion in equity and debt has been deployed. Of the equity invested, 12 per cent was deployed before 2019 and 88 per cent has been invested since 2019, reflecting a rapid acceleration in recent years.

Of the $6.8 billion equity commitment, 57 per cent has been through joint venture (JV) investment platforms, 17 per cent through private equity investments, 17 per cent through strategic primary investments and 9 per cent through strategic secondary acquisitions.

Deals and valuations

Notable deals in India include a $1.7 billion JV between Colt and RMZ, Digital Edge’s $300 million partnership with Assetz and the National Investment and Infrastructure Fund for, Blackstone’s deal with Lumina for $1 billion, and Ascendas Trust’s $750 million deal with CapitaLand. Another notable transaction in the Asia Pacific region in the last three years is the $16 billion deal involving Blackstone and the Canada Pension Plan Investment Board with AirTrunk. The valuation of this deal was based on an EBITDA multiple of 25-30 times. In India, EBITDA multiples are typically in the range of 18-22,  although no active transactions have been recorded yet.