India's data centre industry is on the brink of a significant transformation, with projections indicating a need for an additional 10 million square feet of real estate space and investments amounting to $5.7 billion by 2026. This robust expansion is being propelled by the widespread adoption of artificial intelligence (AI) technologies, which are driving up power consumption and necessitating more extensive infrastructure. According to a recent report by real estate consultancy JLL, the surge in AI usage will significantly bolster the data centre capacity in India, making it a critical area of growth and investment in the coming years.
The Growing Demand for Data Centres
Data centres are crucial infrastructures in the digital age, providing the necessary computing power, storage, and networking capabilities to support various digital services and applications. With the increasing reliance on digital services, the demand for data centres has been on the rise globally, and India is no exception.The report projects that data centre capacity in India will increase by 791 megawatts (MW) by 2026. This surge is attributed to the expanding use of AI, which requires substantial computing power and energy. AI applications, from machine learning to data analytics, demand high processing capabilities, leading to a significant uptick in data centre requirements.
Investment and Real Estate Implications
To accommodate the anticipated growth, substantial investments are needed. JLL estimates that $5.7 billion will be invested in the Indian data centre industry by 2026. This investment will not only enhance the existing infrastructure but also lead to the development of new facilities to meet the growing demand.
The increase in data centre capacity will necessitate an additional 10 million square feet of real estate space. This demand will primarily be driven by cloud service providers (CSPs) who offer IT infrastructure for data storage and computing power over the internet. CSPs are adjusting their strategies to support the AI-driven demand, committing to increased investments to expand their infrastructure.
The Role of AI in Driving Demand
AI technologies are at the forefront of the current digital transformation. The exponential growth in processing power and data volumes, driven by AI, requires the development of new data centres capable of meeting enhanced energy, processing, and cooling needs. As AI disciplines progress and diversify, the demand for data centres is expected to expand further, advancing their capacity and capabilities.
Rachit Mohan, APAC Lead – Data Centre Leasing and Head - Data Centre Advisory, India at JLL, emphasizes the necessity for new data centres to accommodate the growth in AI applications. He states that the anticipated expansion and progression of various AI disciplines will create additional demand for data centres, driving their capacity requirements and advancing their technological capabilities.
Recent Trends and Future Projections
The report highlights that during the second half of 2023, there was a notable increase in data centre absorption. The absorption rate rose by 12 percent to 81 MW compared to 72 MW during the same period the previous year. This growth can be attributed to the renewed momentum of CSPs after a pause in the first half of 2023. In particular, Mumbai saw a significant increase in absorption, nearly doubling as CSPs picked up their pace of expansion.
India is poised to become the third-largest economy with a projected $5 trillion GDP by 2027. The digital economy is expected to contribute around 20 percent to this growth, further propelling the expansion of India's data centre industry. The industry is projected to increase its capacity from 853 MW in 2023 to 1,645 MW by 2026, necessitating the substantial investment and additional real estate space.
Challenges and Opportunities
While the data centre industry in India is on a growth trajectory, it faces several challenges. One of the primary challenges is the availability of suitable real estate. Data centres require specific conditions, including stable power supply, adequate cooling, and robust connectivity infrastructure. Identifying and developing real estate that meets these requirements is critical for the industry's growth.
Moreover, the industry must navigate regulatory and environmental challenges. Ensuring compliance with local regulations and addressing environmental concerns related to energy consumption and heat generation are crucial for sustainable growth.
Despite these challenges, the data centre industry in India presents significant opportunities. The increasing digitalization of various sectors, including finance, healthcare, and retail, is driving demand for data centres. Additionally, the government's push for digital initiatives, such as Digital India and Smart Cities, is expected to further fuel the demand for data centre infrastructure.
As India continues to digitalize, the data centre industry will play a crucial role in supporting the country's digital economy, providing the necessary infrastructure to meet the growing demand for computing power and data storage.
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