As the world becomes more interconnected and reliant on technology, the demand for data storage and processing facilities has skyrocketed. However, the real estate market has traditionally been associated with residential, commercial, and industrial properties; this surge has positioned data centres as technological infrastructure and lucrative real estate assets. These facilities, designed to house computer systems and associated components, are now critical to the real estate portfolio.
JLL’s data reveals a significant trend: in India, the data centre industry is projected to drive a substantial demand for 9.1 million sq. ft. of real estate space during the period from 2023 to 2025. This expansion is fueled by the increasing use of digital technology, the migration of IT infrastructure to third-party providers, and the growing use of data from new and existing channels, providing a secure and promising investment opportunity.
The same data set disclosed that in India, the investment in real estate and data centre infrastructure required for setting up data centres is projected to require a capital outlay of USD 4.8 billion by 2025. It’s a substantial investment in land and real estate, not including IT equipment expenditure, which could bring the total cumulative investments to near a benchmark figure of Rs 2 lakh crore.
Data centres have significant investment potential. They are capital-intensive assets that require substantial upfront investment but offer long-term, stable returns. According to Data Centre Automation Market Statistics, 2030, compiled by Allied Market Research, the global data centre market is expected to grow at a compound annual growth rate (CAGR) of over 21% from 2021 to 2030. This growth is driven by the increasing demand for cloud services, big data analytics, and the Internet of Things (IoT).
Data centre real estate investment trusts (REITs) have become popular for investors to gain exposure to this asset class. REITs specialising in data centres offer investors a way to invest in the digital infrastructure necessary for the modern economy. These trusts generate revenue primarily from leasing data centre space and offer investors the potential for both income and capital appreciation.
The location of data centres is strategic. Proximity to major cities and connectivity hubs reduces latency and ensures fast data transfer. Moreover, data centres’ scalability makes them attractive to investors. As the need for data storage grows, these facilities can expand to accommodate more servers and equipment.
Investing in data centres comes with its own set of challenges. The technology within these facilities is complex and rapidly evolving, requiring constant upgrades and maintenance. Additionally, data centre energy consumption is a concern, with investors and operators seeking sustainable solutions to reduce their carbon footprint.
Despite these challenges, data centre real estate market opportunities are ample. The ongoing digitalisation across sectors and IT infrastructure outsourcing to third-party players create a robust demand for data centre services. In India, the pre-commitment of 350 MW by hyperscalers (large technology companies that provide cloud computing services, storage, and other IT infrastructure services on a global scale) is set to drive industry growth, with expectations that this absorption will be delivered by 2025.
As a real estate investment, data centres represent a unique blend of technology and property. With the digital economy’s relentless expansion, data centres are poised to become a staple of the real estate investment landscape. For investors looking to diversify their portfolios and tap into the growth of the digital world, data centres offer a compelling opportunity. The key to success in this market lies in understanding technological trends, recognising a location’s strategic importance, and committing to sustainability. As the industry continues to evolve, the potential for data centres to reshape the real estate market is undeniable.