DATA CENTRES - THE SUNRISE INDUSTRY

The data centre outsourcing market in India is worth more than USD 2 billion and is projected to grow at 25% CAGR to reach USD 5 billion by FY 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. Agith G Antony takes a peek in to the scope and potential of the Data Centre space.

According to Cushman & Wakefield, the amount of data stored in India is expected to skyrocket from 40,000 petabytes in 2010 to 2.3 million petabytes in 2020. This has led to a flurry of investment in large facilities across the nation, as companies try to prepare for the coming data deluge. The demand for hyper-scale data centres is on the rise, thanks to Government's push for the National E-commerce Policy and proposed policy on Data Center Parks. With the new normal established due to Covid, reliance on technology from enterprises and consumers has increased and a tremendous growth story for data centres in India is on the wings.

The recently virtually inaugurated YOTTA NM1, Asia's largest data centre, tells no other story. “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% CAGR to reach USD 5 billion  by FY 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,” states Shobhit Agarwal, MD & CEO - ANAROCK Capital.

DC Market - A Promising Sunrise Sector

According to Ram Chandnani, Managing Director, Advisory & Transaction Services, CBRE India Data Centers were identified as one of the top five alternate real estate investment options and India emerged as one of the top investment destinations across APAC as per CBRE's APAC Investor Intentions Survey, 2019.  “With progressive interest of global investors, operators and developers in the Indian DC segment, it is likely that the next few years may witness the inclusion of quality DCs (with high occupancies) in future REIT portfolios,” says Chandnani.

The future growth of various industries relies heavily on digitization, and a seamless transformation into Digital India is only possible with the creation of more data centres. According to Agarwal until a few years ago, only a handful of data centre operators such as NTT-Netmagic, CtrlS and STT GDC operated in this space. 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.

“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,” states Agarwal.

New Kid on the Block

Being an industry leader is also about being ahead of the curve, and when it comes to diversifying into the segment of data centres, the MD and co-founder, Hiranandani Group has timed it to perfection. In the second half of 2019, he announced setting up of Yotta Infrastructure, a Hiranandani Group subsidiary and a Managed Data Centre Service Provider, which would develop hyper-scale data centre parks in India. India's largest Data Center building, Yotta NM1, the largest Tier IV Data Center, certified by Uptime Institute in Asia, and the second largest in the world was recently inaugurated in the virtual presence of Uddhav Thackeray, Chief Minister, Maharashtra. 

According to Dr. Niranjan Hiranandani, Chairmen, Yotta Infrastructure Solutions India's data centre market size is estimated to cross $4.5 billion, growing at a CAGR of over 4 percent during 2020-2025. The Indian cloud market is estimated to be $4.5 billion by end-2020. IaaS adoption is likely to grow at a CAGR of 20% between 2020 and 2025. “Data localization will increase the physical presence of cloud service providers. State governments are attracting Foreign Direct Investment (FDI) through tax incentives, this will support the strong growth of wholesale colocation. The majority of local data centre service providers offer cloud-based services to end-users in India. Implementation of 5G technology, likely in 2021, should witness the adoption of IoT-enabled product growth in the Indian market. In terms of big data, the Indian government has launched a big data management policy through the Comptroller and Auditor General of India (CAG). The market for big data and IoT has huge potential to be the strongest driver for data centre investments in the Indian market,” states Hiranandani.

On the back of various policy initiatives, widening customer base and increasing corporate  requirements for data storage, CBRE recently shared key findings that delved into the Data Centre (DC) market and highlighted top trends that will shape the segment in 2020. Commenting on the Data Centre market in India, Anshuman Magazine, Chairman & CEO - India, South East Asia, Middle East & Africa, CBRE states,“In the era of the fourth industrial revolution, we expect regulatory support to augment the Data Centre demand in India. Policy impetus such as the National E-commerce Policy, Personal Data Protection Bill, proposed policy on Data Center Parks and digital initiatives by the government will accelerate demand. The Covid-19 situation will further propel the next wave of growth in the sector and most importantly, the proposal to give DCs the coveted 'Infrastructure status' will place them high on global investor radar.”

As per the CBRE findings, the data centre capacity is expected to grow 2X times by FY25 from the current 500-520 MW and markets across Mumbai, Chennai, Bangalore, Kolkata, Hyderabad, Pune and NCR are expected to witness supply addition of upto 40% in 2020.  Out of this, Mumbai currently leads with 41% data centre capacity, followed by Bangalore (17%) and Delhi (16%).

Investment Scenario

“CBRE expects that global players will continue to take interest in investing in the country, with a focus on backing leading operators or funding prominent developers to foray into the DC segment in 2020. Further, against the backdrop of the Covid-19 situation in India, corporates would be inclined towards investing in the cloud segment as business moves online and both employees and employers prefer the work from home option. The current situation will further propel the next wave of growth in the sector and most importantly, the proposal to give Data Centres the coveted 'Infrastructure status' will place them high on global investor radar, points out Ram Chandnani, Managing Director, Advisory & Transaction Services, CBRE India.

Growth Drivers

The major factors driving the data center market is the availability of tax incentives, skilled resources, reliable electricity supply, network connectivity and renewable energy sources.The data centre business is capital and technology intensive, and over the past few years data centre growth has been concentrated in regions / countries that offer tax incentives. Several state and local governments provide investment and tax incentives based on economic development, where incentives are focused on effective facility operations and renewable energy sources procurement. Among all Indian states, Maharashtra and Telangana were the first movers to release state-specific incentives for the DC segment. Several other states (Gujarat, Karnataka, Tamil Nadu, Andhra Pradesh, Kerala) also now offer / plan to offer incentives to DCs over the coming quarters, according to Chandnnani.

The key sectors expected to boost demand for the Data Centre market are large technology companies along with corporates from sectors such as fintech, pharmaceuticals & healthcare, manufacturing, retail, hospitality, e-commerce, media, education and large cloud service providers. Technology and automation provide a significant opportunity to make steep changes in terms of how data center operations evolve as we move forward in the next 3-5 years. In India, data centres will continue to enable the digital world, which has been more crucial than ever during this time.

The massive digital push initiated by the Covid-19 pandemic has been lucrative for data centres, which can still deliver an annual rental yield of 10-14%. The key cities leading demand for data centres include Mumbai, Chennai, Bengaluru and Hyderabad, among others.Agarwal,says, “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. Immediately after India went into a lockdown mode due to Covid-19, there was a 25-35% increase in data centre capacity usage as companies began to overhaul their digital infrastructure to deal with the new work environment.

Moving towards Green DCs

“Data venture infrastructure has witnessed the evolution of ICT equipment rooms to cloud data centre solutions. With the development of technologies like AI, cloud computing, Big Data, and 5G will lead to an increase in data centre solutions demand. This will require innovation in data centre technologies and solutions that focus on building a robust ecosystem and resolving the industry's key challenges. A balance between efficiency and cost will be essential, where power management solutions will play a vital role, says Deepak Thakur, Business Head, UPS & Data Center Solutions, Delta Electronics India. 

Thakur adds, “The focus is to make the technology more energy efficient and integrate renewable sources for the power requirement of the data centre infrastructure. With the preceding time, the data centre infrastructure by power capacity is expected to grow as the solar energy potential in Karnataka is expected to exceed 24/7 GW. This can be a major advantage for the operators to meet the power requirement of their facilities thought solar energy solutions. Another significant aspect is to increase the data centre efficiency that will support the industry to manage the growing workload without a major increase in electricity demand. This requires designing high energy-efficient cooling solutions. The energy demand for cooling solutions has been one of the primary reasons for the over low energy efficiency of the data centres. Thus, the trend is to adopt cooling solutions that understand these challenges and provide solutions that meet the cooling demand at optimum energy needs.”

According to Thakur at present, the total energy requirement of data centres accounts for 3% of the overall power consumption. Going ahead, the trend will be to resolve challenges such as energy-saving, reduction in emission, and operating expenses (OPEX).  “The focus will be on reducing the power usage effectiveness (PUE) of data centres and building Green Data Centres, states Thakur.

“Yotta NM1 provides arguably the most efficient power offering available in the market- not just the lowest price of power but also a Power Usage Efficiency or PUE that is a global benchmark for the tropics. That is only phase zero (0). The plan is to migrate to renewables and gas-based combined heat and power generation onsite will give chilled water at the most efficient cost structure possible and will bring Yotta NM1's design PUE numbers down to 1.2 - again unheard of in Indian weather conditions. And, it will not stop there. Facilities are being built to ensure that Yotta NM1 can be 'future-ready' to be 100 percent run on renewables whether offsite, through solar and wind coupled with onsite hydrogen-based co-generation and fuel cells in the future,” avers Hiranandani.

The pandemic has been a massive catalyst for digital adoption across the spectrum, says Agarwal. “Work-from-home (WFH) compulsions, online education, video-based medical consultations, a huge increase in ecommerce and business-related video conferencing and webinars are increasing the demand for data centres. Furthermore, the government's move to make data localization mandatory ensures a promising future for data centres in the country.” With growing digital consumption patterns such as online gaming, online education, streaming, e-commerce, total internet hits etc., DC operators are expected to see a huge demand for data center space, thereby scaling up their DC facilities quickly to serve hyperscalers & enterprise clients.

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TOWARDS A DIGITAL FUTURE

India has embarked on a concerted digitization drive to improve efficiencies and generally make life easier for its citizens. Digital India - the flagship programme of the Government of India (GoI) - intends to transform the country into a digitally-empowered knowledge economy. There are significant growth drivers in place:

-   Active Internet Users: As per the Internet and Mobile Association of India (IAMAI), India has more than 500 million active internet users (second only to China at around 900 million) - 37% of the population is actively wired into the worldwide web.

-   Large Mobile Telephone Subscriber Base: As per the Telecom Regulatory Authority of India (TRAI), there are nearly 1.15 billion mobile telephone subscribers in India as of April 2020, indicating that nearly 85% of India's population already has cellular telephone connections.

-   Smart Cities Mission: This mission will use data and technology to revamp the identified 100 cities and make them sustainable, efficient and future-ready.

-   Burgeoning Young, Tech-savvy Population: As per the last census, India's youth population (aged between 15 - 24 years) was 19.1% of the total population - this was expected to increase to 34.33% of the total by 2020. A massive scale-up of digitally-savvy young people will directly result in a bigger data footprint.

-   Enabling Policy Environment: The Personal Data Protection Bill, 2019 emphasizes local data storage, and the draft Ecommerce policy, 2018 requires ecommerce companies to store data locally.

-   Globalization: India is the de facto 'back-office to the world' and has 55% of the world's market share of global servicing business

-   Start-up Ecosystem: India has the world's 3rd largest start-up ecosystem

-   Industry 4.0 - a Tectonic Shift: Industry 4.0 is a new phase in the industrial revolution that focuses heavily on interconnectivity, automation, machine learning, and real-time data.

Source: Anarock Capital

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FACSHEET

• Presently, data centres occupy 7.5 mn sq. ft. space in top 8 cities
• Top 8 cities to add ~10 mn sq. ft. data centre space in next 2-3 years
• Potential to earn around 10-14% rental yield annually
• Min. 25-35% increase in data centre capacity usage during lockdown as companies overhauled digital infrastructure in new work environment; trend to continue Mumbai, Chennai, Bengaluru & Hyderabad see maximum demand
• Adani, Hiranandani Group, SalarpuriaSattva etc. have massive investment plans for building data centres in India
• Government's efforts to make data localization mandatory ensures promising future for data centres in India

Source: Anaroc

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TOP TRENDS EXPECTED TO SHAPE THE DC INDUSTRY

Fund Deployment towards DCs to Rise

CBRE expects that global players are likely to continue to take interest in investing in the country, with a focus on backing leading operators or funding prominent developers to foray into the DC segment in 2020. Further, against the backdrop of the COVID-19 situation in India, corporates would be inclined towards investing in the cloud and hybrid IT infrastructure, as operations would move online and employees may need to continue to work from home.

Transition from Captive to Co-location and Cloud DCs

Occupiers' demand for co-location space over captive DCs is further likely to boost due to categorization of third-party DCs as 'Essential Services” ensuring uninterrupted and uneventful operations even during a pandemic situation like the world is facing today. With regulatory requirements for data storage expected to be implemented in the coming quarters, CBRE anticipates that corporates would now seriously re-evaluate their DC portfolios in the country.

Edge Computing to Become a Part of DC Portfolios

CBRE anticipates that cities such as Kolkata, Pune, Gurgaon, Kochi and Jaipur, particularly, are likely to be amongst the first ones to witness edge DCs in the next few years on the back of their ability to service specific geographic zones.

Sustained Policy Impetus to Spur DC Demand

The passage of policies such as the National E-commerce Policy and Personal Data Protection Bill are likely to mandate Indian consumers' data to reside within the country, thereby boosting the demand for data centers.  Further, large-scale, nationwide initiatives such as 'Make in India', 'Digital India' and Smart City Mission in particular would further augment DC demand.

Source: CBRE

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