Growth of Data Center REITs in India
REITs manage and maintain the infrastructure and rent out a portfolio of data centers for investors and tenants (corporate clients or large cloud computing companies)
India is one of the most exciting countries for the Data Center (DC) market. Deep internet penetration and e-commerce setup coupled with being a preferred and leading outsourcing hub for data processing – all work in favor of the country.
The growing importance of smart technologies, IoT-powered devices, Big Data, Industry 4.0, 5G, and cloud computing has led to Data Centers taking on a more prominent role in businesses in recent times. The rising data consumption patterns witnessed after the COVID-19 outbreak have underscored the growth potential of this emerging segment.
The surge in data usage over the last year, increasing automated demand, changing demographic patterns, and increased level of remote working are further contributory factors to the revival of the segment. While the need is robust in large and dispersed markets, opportunities exist in several potential tier-2 markets in the country. Data Center REITs are gaining investor support with such diverse avenues of growth that continue to grow with the spike in new investors listed in the real estate assets space.
Data Center REITs – Status in India
It is important to note that REITs continue to offer a relatively stable income-generating opportunity to investors in India. From a more mature market perspective, Data Center REITs are found prevailing in the market. They manage and maintain the infrastructure and rent out a portfolio of data centers for investors and tenants (corporate clients or large cloud computing companies).
Data Centers have emerged as one of the top-performing asset classes in the global REIT market space. Globally, the COVID-19 outbreak led to a shift in investor preference towards Data Centers. For instance, Data Centers were amongst the top-performing assets in the US REIT market. Similarly, with the progressive interest of global investors, operators, and developers in the Indian Data Center segment, the next decade may likely witness the inclusion of quality Data Centers (with high occupancies) in future REIT portfolios.
As India builds a more robust digital footprint, Data Center will continue to appeal to investors seeking safe and long-term revenues.
Market Drivers for the Growth of Data Centers in India
According to a recent McKinsey report, India is the second-fastest-growing digital economy. It further anticipates that the IT and communications sector will double by 2025 – contributing around $ 55-435 billion to the overall GDP.
- Increased domestic data usage: The pandemic has fueled the interest in data demand. Provided a fillip by government policies & initiatives like Digital India, National e-Governance Plan, an e-Visa, the structural data consumption has led to an all-time increase. Additionally, the remote work/study followed by high internet entertainment & e-commerce activities are other few reasons increasing domestic data usage.
- Global company demands and setting up bases in India: Some major universal IT firms have shown their interest in the Indian market and have initiated setting up their base and have an active foray in the data center realm. Indian infrastructure companies like Yotta Infrastructure are planning to set up data centers to meet the demands of global companies. Moreover, substantial growth in outsourcing demand has been witnessed, which is further driven by cloud players and technology firms looking to cater to the high number of large financial institutions and other corporates headquartered in the city.
Future expectations on the growth of Data Center REITs in India
Post the onset of the pandemic, the segment has grown significantly. Due to its sustainable business model and stable rate of return, both national and global players can equally benefit from the segment. As international investors’ interest moves to the Indian data center industry, some factors played a considerable role in bringing the shift, such as high data bandwidth, growing domestic market, and cheap power.
Though this segment is a multi-billion investment opportunity, it provides long-term stable returns hence early movers with a long-term partnership perspective will benefit the most. Besides, Return on Investment (ROI) in India is highly competitive; investors are planning to capitalize on technology trends could opt for REITs as a constructive investment option.
That said, India’s legal share can look for investment-friendly possibilities for global investors. With robust infrastructure & supporting the growth of the segment, India could be the ultimate investment-friendly space. Overall, India is ready for this demand, housing stakeholders accountable to make this happen.
Authored by Ram Chandnani, Managing Director, Advisory & Transaction Services, CBRE India