The Great Evolution of Data Centre Market in India: Challenges and Opportunities

At the recently held GRI Offices India eSummit 2020, the discussion on Data Centres was attended by leading expert operators, investors and developers. The panel was moderated by Shashank Jain , Lead Real Estate Deals, PWC and consisted of senior associates including Sunil Gupta, Managing Partner&CEO, YOTTA infrastructure, Sridhar Pinnapureddy, Founder& CEO CtrlS, Sanjay Bhutani, SVP&Head of Data Centre Business, Adani Enterprises, Ramaiy Kapoor, Head of Investments Capitaland India , MP Vijay Kumar, CFO , Sify Technologies and Piyush Gupta, MD Capital Markets, Colliers International. A summary of the discussion is featured below. For a more detailed report please visit the link below.

Data Centres is an integral part of any enterprise today which is used for storage of data. The business plan also includes management, back-ups, recoveries, online gaming, machine learning, etc.

Data Centre assets have three parts to their ecosystem, the first being a Development Company which essentially owns and develops the Data Centre itself. Then we have the Management Company that operates and manages the Data Centre. Lastly, the Customers that assume the role of the cloud providers, telecos, content players, e-commerce, banking, amongst other opportunities arising out of the infrastructure provided by the data centres. A professional well-functioning Data Centre requires uninterrupted power supply, effective cooling system, secured technological infrastructure, qualified staff, fibre cable, etc. 

The space has seen and is likely to see forward and backward integration at an increased level due to the rampant growth and the desire of industry participants to get a piece in the returns expected from the data centres asset. Investment opportunity in this asset class has magnanimously increased since the overall COVID impact has been positive; we have seen transition into cloud computing by companies; there is Onset of 5G and edge centres; the asset is equipped with long term stabilized yields and lower real estate cost. Further specific to India, the government policy is likely to drive a shift towards India. Some believe that the industry will keep on growing at an exponential pace doubling every three years.

Data Centre Shows Great Potential 

There has been a tremendous increase in data usage worldwide where the data is expected to grow at a CAGR of 61% to 175 Zettabytes by 2025. There has been a 4x increase in the number of wireless data subscribers from 281.6 mn to 1100mn users in the period 2014 to 2020. The cost per GB has come to 1/10th as compared to the rates five years ago. The average consumption of data per user is doubling every five to six years.

Further, the high growth of e-commerce sector, smartphones and social media, digitization of financial transactions and usage of OTT platforms for contents has contributed to organic increase in data usage and provide strong drivers to demand. The market has seen the Enterprises shifting from captive Data Centres towards third party Data Centres and Cloud services (shared computing data services) from 2015 onwards.

Evolution in Data Centre Models

Way back the industry was primarily dominated by telecommunication companies with build and operate models. Traditionally the retail customers, banks, and telecoms were looking for mid-size data centres but now the industry is looking for hyperscale data centres. 

While this business is in its nascent stage it is too early to define the model. However, while the industry evolves three types of model emerges, the BOO (Build Own and Operate), BOT (Build Operate and Transfer) and to create a shell and give it to a partner to operate. 

The Hyperscalers that are looking for capacity upto 10 mw would go for a co-location model. Whereas the Hyperscalers looking for capacity of around 40 mw would go for BOO, BOT models. The BOO model involved demanded high quality network services, voice, infra services, etc. and has proven to be very successful viewing it as a way to go about. However, they have also adopted a hybrid model where they have a development partner, local to the geography which brings to the table the infrastructure.

The Modelling in the data centres is largely a function of the size of the capacity making scalability the key driver to adopt the model for a data Centre.

Data Centre Market Innate to India

In India ~ 8mn sq. ft. of built up area is occupied by Data Centres in key cities i.e. Mumbai, Delhi NCR, Bangalore which occupy more than 65% of the total space. Further, there has been tremendous adoption of cloud computing, IT sourcing and data consumption along with the entrances of hyperscalers in the India market. 

The key business risks assumed in a data Centre asset is maintaining continuous uptime, maintaining capacity utilization for power supply, cooling and space efficiency, high capital expenditure. Given the prerequisites innate to setting up a Data centres, India has not yet seen large scale investments flowing in Data Centre space as compared to other asset classes in the real estate sector. 

However, the deals witnessed recently in India is likely to change the face of the Data Centre space. These deals show clear interest in sentiments of domestic as well global investors towards Data Centres in India.

Challenges Inherent to the Indian Market

In India, a key challenge remains finding a land adept to set-up and develop data centres. Further interactions with local authorities also pose a challenge in getting the ball moving swiftly. Once the developers manage these challenges, another challenge that arises for functioning of a data centre is the requirement of uninterrupted power supply, any interruption to the power supply could very well be fatal to the data centre. Stable network infrastructure is an essential requirement and therefore in India we 45-50% of Data Centre space is situated in Mumbai. 

Governmental Support 

Lately, the Indian Government including the State and Central Government have honed in their initiatives towards stimulating the digital economy, look at data protection laws and norms, provide GST refunds and fee rebates to incentivise the asset, relax land acquisition related dues such as stamp duties, etc. The ask of the industry would be to grant data Centres the status of infrastructure in order to optimize flow of funds in India energizing the asset class.