InvestorQ : How is there so much bullishness about India’s commercial real estate market if more and more people are starting WHF or work-from-home?
rhea Babu made post

How is there so much bullishness about India’s commercial real estate market if more and more people are starting WHF or work-from-home?

Riya Dwivedi answered.
2 years ago

The big India commercial real estate story is not predicated on offices and people occupying such offices. On the other hand, the big story is massive data centres being set up to drive all the digital revolutions that we keep talking about. There is likely to be an explosion of demand for such data centres and that is what the real estate story is betting on.

According to a recent study, India’s data centre business is expected to see an explosion of demand from 2021onwards. This has been ratified by several leading real estate consultants. Most metro cities of Mumbai, Chennai and Hyderabad are likely to play host to this surge in commercial real estate demand to power complex information highways.

Since the onset of COVID and the subsequent lockdowns, there has been an astronomical growth in the use of smart devices along with trillions of gigabytes of data piling up. This has obviously led to a surge in data storage and processing requirements in India. As CBRE puts it, data centres could provide the fuel for the next big stride in realty demand.

Most realty experts expect the occupier demand for data storage to increase exponentially in the coming quarters. The country’s data centre capacity is expected to cross 600 MW during in early 2021. Supply addition of data-centre ready properties will be concentrated in places like Mumbai, Chennai, Hyderabad and Delhi-NCR.

Interestingly, the pandemic has seen upsurge of end-users from different segments, which include e-commerce, online banking, entertainment, education and OTT. Investors are salivating as rental yields in these kinds of commercial real estate properties can go as high as 14% in some cases and 12% in median cases.

As per real estate industry estimates, the overall data centre outsourcing market in India is worth more than $2 billion. But what is more interesting is that it is projected to grow at a compounded annual growth rate of 25% so as to reach an overall market opportunity level of $5 billion by FY24.

Data centre housing includes computing infrastructure like servers, routers, switches and firewalls. In addition, it also includes the supporting paraphernalia like backup equipment, basic hardware, fire suppression facilities, redundancies and air conditioning. Most of these properties also attempt to run on renewable energy so as to keep impact under control.

According to Anarock Capital, data centres in the top eight cities in India today occupy 7.5 million SFT space. However, the pace at which data is growing, there is need for additional 10 million SFT space over the next 2-3 years and the supply is already on the way. In the last one year, there was 25-35% increase in data centre capacity usage.

It has a lot to do with the pandemic. Work-from-home compulsions, online education, telemedicine consulting, ecommerce boost and business-related video conferencing are increasing the demand for reliable data centres. Add the efforts of the government and housing data centres appears to be a roaring business.