COLLIERS RADAR DATA CENTERS | RESEARCH | INDIA | 22 OCTOBER 2020

Vaishnavi Bala
Asst. General Manager| Research |
India
+91 78990 45476
Vaishnavi.bala@colliers.com

Ashish Varanasi
Asst. Manager | Research | India
+91 91 4803 8931
Ashish.varanasi@colliers.com

CO-LOCATION DATA CENTERS IN

INDIA: A REALTY-TECH-INFRA PLAY
India on the threshold of a Data Center boom
COLLIERS RADAR DATA CENTERS | RESEARCH | INDIA | 22 OCTOBER 2020
Summary & Recommendations
Currently, the Indian co-location* data
center (DC) market is over 9.0 million sq
feet (0.8 sq meters). We forecast this to
grow to 20 million sq feet (1.8 million sq
meters) by 2023 led by local and global DC
operators. Mumbai leads DC stock, partly
due to its position as the financial capital
of India, the presence of under-sea
submarine cables, favourable government
policies.
> Colliers recommends that each state
government either introduces a single-
window clearance or necessary
amendments to their existing IT
policies to facilitate growth of the DC
industry.
> We recommend that state
governments actively encourage the
use of their existing and upcoming
industrial parks for setting up DC since
most of them have the requisite
infrastructure.
> We recommend that developers with a
pan-India presence or strong regional
presence either partner with DC
operators or build in-house
capabilities.
> With a large international demand, we
recommend developers build a strong
DC portfolio that can be converted into
a REIT offering.
2
India co-location DCs : demand drivers
Rising data consumption + 5G to represent 18%
data generation + of mobile
cheap tariffs subscriptions by 2025
Monthly data traffic in India is estimated to According to Ericsson, over 41% of Indians are
grow at a CAGR of 23% from 4.6 exabytes in looking to upgrade after the launch of 5G,
2018 to 16 exabytes in 20244. Further, mobile estimating a 3X rise in data traffic and 410 million
data traffic per smartphone in India is forecast additional users by 20252.
to touch 25 GB per month by 2025 from 12 GB
in 20191.
Growing cloud adoption – Banking & digital
40% of enterprises economy are the center
to use cloud for their of DC growth
applications by 2025
According to Reserve Bank of India (RBI), digital
According to IDC3, Indian cloud adoption is transactions in India grew 10X from 2.4 digital
disrupting traditional data storage and transactions per capita per annum in March 2014
management practices. The ongoing pandemic to 22.4 in March 2019. Further, the RBI and the
has increased digitization, providing an impetus government are aiming to achieve 220 transactions
to increased demand for DCs. per capita per annum by March 20214
India has about 1.2 megawatt (MW) per user of co-location DC capacity when compared to Europe’s
19.1 MW per user DC capacity5, providing a huge opportunity for DC operators.
For the financial year 2020-2021, the central government has proposed a INR800 million (USD1.1 billion)
fund to setup DCs and IT parks across the nation. This is backed by the government’s Personal Data
Protection Bill, 2019, which mandates that an individual’s data should be stored locally.
In this report, we cover factors driving demand for DCs in India, including favourable government
policies, the investment scenario for DCs, and Colliers’ location recommendations for setting up DCs
Notes:
USD 1 = INR 73.7 as of 25th September 2020
1. https://www.ericsson.com/en/press-releases/2/2019/6/data-usage-per-smartphone-is-the-highest-in-india--ericsson
2. https://www.ericsson.com/en/mobility-report/reports, June 2020
3. https://blogs.idc.com/2020/03/02/whither-goest-thou-enterprise-workloads/
4. https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/CDDP03062019634B0EEF3F7144C3B65360B280E420AC.PDF
5. https://www.dqindia.com/india-abnormally-low-data-centre-capacity-sunil-gupta-yotta/
COLLIERS RADAR DATA CENTERS | RESEARCH | INDIA | 22 OCTOBER 2020

INDIAN DCS MARKET - STRENGTHS AND

OPPORTUNITIES
Strengths
Internet users Subscribers Campus style options Undersea cable
connections
1st India
2nd China

Availability of multiple Connected by undersea

As of April 2020, options for campus cables connecting Europe
India has style DC development and Africa to Mumbai and
604 mn 829 mn
2018 2021
> one billion in various cities Chennai, and has
availability of multiple
mobile subscribers7 helping portfolio
optimization. cable landing points

Opportunities

5G to open new
opportunities for
Rising digital USD39 bn USD120 bn Government’s push consumers and
transactions 2017 2020 for digital India enterprises
Ericsson projects 5G-
Total 2019-2020 financial Series of policies and
reforms such as data enabled digitalization
year digital payment revenues in India to touch
volume grew by 47% YOY
World’s fastest localization, consumer
growing e-commerce data protection bill, and USD17 bn by 2030
and digital payment impacting healthcare,
value grew 20% YOY8. sector9 e-commerce bill to drive
manufacturing and
DC demand.
industry

6. https://cms.iamai.in/Content/ResearchPapers/d3654bcc-002f-4fc7-ab39-e1fbeb00005d.pdf
7. https://www.trai.gov.in/release-publication/reports/telecom-subscriptions-reports
8. https://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=1293
9. https://www.cci.gov.in/sites/default/files/whats_newdocument/Market-study-on-e-Commerce-in-India.pdf
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COLLIERS RADAR DATA CENTERS | RESEARCH | INDIA | 22 OCTOBER 2020

INDIAN DCS MARKET - CHALLENGES

Fixed broadband speed Clean energy and sustainability

India’s fixed broadband speed is India’s share of global total CO2

lower than global average emission is 6.4%11
Large DC service operators such as
India ranks 74th amongst 174
Microsoft have sustainability goals to
nations with an average download
reach 100% renewable energy by 2025,
speed of 43.0 mbps while global
which could become a challenge for
average being 84.3 mbps10
Indian DC market

Long regulatory Fluctuations in power supply

approval timelines and unstable fuel prices

In the absence of power supply from

Long regulatory approval local substations and the
timelines can increase the dependency on generators sets
compliance costs for companies amidst oscillating crude oil prices can
setting up DCs result in rise of operational
expenditure.

10. https://www.speedtest.net/global-index/india#fixed
11. https://niti.gov.in/sites/default/files/2020-01/IEA-India%202020-In-depth-EnergyPolicy.pdf

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COLLIERS RADAR DATA CENTERS | RESEARCH | INDIA | 22 OCTOBER 2020

REGULATORY REFORMS AIDING GROWTH OF DCs

DC demand

Reserve Bank of DC Outlay Data

India’s policy on The government is Protection
data localization planning an outlay of Bill
Payment system INR8,000 crore Companies must
operators to ensure (USD1.1 bn) through store critical
data is stored in India 202516 personal data
regardless where to set up DC and IT and sensitive
processed. parks as a part of personal
National Mission on information
This is applicable to Quantum
all banks operational within India.
Technologies
in India.

We believe that DCs in India are riding a new wave of growth, powered in
part by government initiatives. We believe the most influential policy is the
Data Protection Bill, 2019, that mandates data localisation12.
Key DC set up incentives offered by select Indian states
State Key Incentives
Maharashtra13 Stamp duty exemption, electricity duty exemption during
investment period, GST (Goods and services tax) refund for
a maximum of ten years
Telangana14 Land to be provided at a subsidized cost, uninterrupted
power supply, up to 50% building fee rebate
The incentives offered by Indian states, along with upcoming policies by states
such as Karnataka, should offer a huge opportunity to co-location DC operators to
expand, and for new players to enter this space.
Colliers and industry expectations from the government
> Based on our analysis and discussions with leading DC operators in India, the
industry expects tax rebates to be standardized across states to attract the
huge volumes of investments needed:
– Lower tax on equipment and imports to reduce capex for operators
– Uninterrupted power at affordable costs akin to incentives offered by
Telangana
– Stamp duty exemption while purchasing land

Tamil Nadu15 DCs to get uninterrupted power supply and ease in
approvals
12. https://www.prsindia.org/billtrack/personal-data-protection-bill-2019
13.https://www.maharashtra.gov.in/site/Upload/Government%20Resolutions/Marathi/2016091613000859
10.pdf
14. https://www.telangana.gov.in/PDFDocuments/Telangana-Data-Centres-Policy.PDF
15. https://it.tn.gov.in/sites/default/files/2018-10/ICT_policy_2018.pdf
16. https://www.prsindia.org/parliamenttrack/budgets/union-budget-2020-21analysis
> Colliers recommends that each state government either introduces a separate
DC policy or modify their existing IT policies to provide single-window
clearances to reduce go-to-market time. The current approval process typically
requires up to 40 permits, which can take up to 12 months to process.
> Further, state governments should actively encourage DCs to come up in their
industrial parks as these are already equipped with necessary infrastructure.

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COLLIERS RADAR DATA CENTERS | RESEARCH | INDIA | 22 OCTOBER 2020

INDIAN & APAC MARKETS COMPARISON

Hong Kong The Indian government is
Below are the few Hong Kong government support at the nascent stage of
measure to help in tapping the ongoing strong DC recognising DC as an
demand. asset class. The central
> In 2020, the Hong Kong government plans to and the state
launch its 5G network infrastructure on the back governments have begun
of the ongoing smart city initiative incentivizing DCs to
promote the industry,
> Permission for wholesale conversion or which we have discussed
redevelopment of existing industrial buildings to in the previous page.
cater strong demand Here we provide a
> A land sale program that allows development of glimpse of government
DC on government land. policies and incentives
> From the scalability perspective, the local offered in key Asian
government allows lease modification for markets.
redevelopment of high tier DC.

Pan China
> In March 2020, China announced its “New
Infrastructure" program for the data era, a strategic
program aims to boost technology, deploying 5G
networks and internet data centers (IDC).
> During 2020, in the regions of Shanghai and Beijing,
a policy was launched for the Promotion Of
Construction Of New Infrastructure Action Plan
(2020-2022), targeting construction more IDCs
suitable for cloud computing.
> During the same year, in the region of Guangzhou
and Shenzhen, a policy was laid out Issuance of
Layout Plan of 5G Base Station and DCs (2021-2025)
and targeting to build modern DC.

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COLLIERS RADAR DATA CENTERS | RESEARCH | INDIA | 22 OCTOBER 2020

DC STOCK TO DOUBLE BY 2023

As of September 2020, Colliers surveys 9.0 million sq feet (0.8 million sq Mumbai - Navi Mumbai & Panvel
meters) of co-location DC space in India. By 2023, we project DC stock rising to
about 20 million sq feet (1.8 million sq meters). DC operators scout locations Mumbai
based on the following considerations: Navi
> Fibre optic connectivity Mumbai
> Electric infrastructure redundancy
> Offshore internet backbone connectivity
Most DC operators are currently following a built-to-suit model, which can take Navi Mumbai and Navi
about two years to become operational, and is dependent on local approvals. Panvel, offer Mumbai
contiguous land, at
We believe that locations near Mumbai fulfill the above criteria and are the cheaper rates, with Panvel
most sought-after. Furthermore, we provide micromarket recommendations adequate
for development of DC across India’s six largest markets. infrastructure needed
We recommend large Grade A developers in cities such as Navi Mumbai, for DC
Hyderabad and Chennai form strategic partnerships with specialized co-
location DC operators to tap into the booming demand for DCs.
Chennai - Ambattur & Siruseri
Mumbai is India’s DC market leader
Mumbai has the largest DC market in India due in part to its position as India’s Ambattur
financial capital, and the accompanying data volume, as well as its proximity to
the under-sea submarine cables and incentives from the government. We
believe that Belapur, Thane-Belapaur Road, and Panvel, are locations worth
considering for setting up co-location DC, led by the availability of land and
access to under-sea submarine cables.

Chennai to benefit from lower developmental costs Ambattur industrial

Over the next five to seven years, we believe that the Chennai DC market is area and OMR post
well positioned for growth, led by the comparatively lower cost of toll have industrial
development, the presence of submarine cables, and incentives provided by land suitable for DC
the state government. As per the Tamil Nadu government17, companies have Siruseri
signed memorandum of understanding for a total of INR8.3 billion (USD1.1
billion) of investments in Chennai for developing DC.
17. https://www.thehindubusinessline.com/news/chennai-emerges-a-data-centre-hub-with-new-projects- Source: Colliers International
worth-8300-cr/article32232220.ece
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COLLIERS RADAR DATA CENTERS | RESEARCH | INDIA | 22 OCTOBER 2020

Bengaluru – Whitefield & Electronics city Hyderabad - Kokapet & Shamshabad

Whitefield
Kokapet

These hubs benefit These

from proximity to micromarkets are
clients and ideal destinations
comparatively lower as they have
land rates adequate land for
IT and industrial
developments
Electronic City Shamshabad
along with ease of
access.

Delhi NCR - Southern Peripheral Road (SPR) Pune - Pimpri

SPR benefits from Pimpri facilitates

good connectivity the huge power
to client hubs, and land
while offering requirements of
competitive land DC, with adequate
rates infrastructure
Southern Peripheral Road,
Gurugram

Source: Colliers International

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COLLIERS RADAR DATA CENTERS | RESEARCH | INDIA | 22 OCTOBER 2020

INVESTORS HONING ON DCS

Between January and August 2020, Colliers noted that DC attracted Investment opportunities
investments of about USD396 million (INR29 billion), accounting for about
46% of the total private-equity investments in Indian real estate. The inflow Supply forecast Average investment needed
was led by a deal each in Delhi and Mumbai. This interest in DC resonates
~ Stock to more than USD4.0 - USD5.0 million
with our April 2019 survey Investors in India look to office, DCs, where about double to about per MW
63% of the respondents preferred DC as their first choice among newer 20 mn sq feet
avenues for investment.
Since DC are hugely capital intensive, we recommend that investors with a Time taken to Net yield per High customer
long-term horizon scout for greenfield DC assets, that yield more attractive break-even annum stickiness
returns than brownfield assets. We estimate that Tier 3 and Tier 4 DC asset ~6 years 16% to 18% 14-20 years
class can provide a net yield per annum of about 16%-18%, making them
attractive for institutional investors. Over the next decade, we also believe
that a strong DC portfolio of a developer can also be converted into a Real Business challenges
Estate Investment Trust (REIT) offering, led by a strong appetite for income-
Supply and maintenance of uninterrupted power supply
yielding assets. DC REITs are doing very well in developed markets such as
(from dual substations + standby)
the US, China, Singapore and Australia and interest in them is increasing.
Maintaining continuous uptime from 99.671% to 99.995%
Co-location DCs to get boost from healthcare and (internet service)
pharmaceuticals, edTech, gaming firms Robust built-up (load bearing) + maintenance
(cyber security and coolant systems)
We urge co-location DC to target growing sectors including healthcare and
pharmaceuticals, edTech, gaming, over-the-top entertainment, urban Source: Colliers International
mobility, and agricultural firms. These next generation economy sectors are
more likely to propel the need for storing vast amounts of data, while
demand continues from traditional sectors such as fintech, technology, and
Ongoing investments in DC, INR million (USD million)
e-commerce firms, including traditional retailers transitioning online. Investment in INR
million (USD
The pandemic has increased demand for digital connectivity among Player City Time period million)
individuals and enterprises, increasing demand for DC. Additionally, Google – Digital India Pan India 2020-2027 7,500 (10,000)
according to Ericsson mobility report projects that India with a combination
of 5G and digitalization is poised to touch USD700 billion of 5G enabled Amazon Hyderabad 2020-2025 1,200 (1,600)
business to business value by 2030. Mumbai &
Hiranandani - Yotta 2020-2025 1,500 (2,000)
Chennai
Gartner predicts that by 2025, 80% of enterprises are expected to shift to co-
location centers18. We believe these aspects ought to open opportunities for Microsoft Azure –
Pan India 2020-2029 1,500 (2,000)
Reliance Jio
co-location shared DCs in India.
18. https://www.gartner.com/smarterwithgartner/the-data-center-is-almost-dead/ Source: Colliers International
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COLLIERS RADAR DATA CENTERS | RESEARCH | INDIA | 22 OCTOBER 2020

Cash flow analysis of an operator (INR cr) Cost split-up of a DC (percentage)

Others
Cost (Set-up + operational) Revenue (EBIDTA) Occupancy %
10%
INR cr Mechanical
1,400 100% infrastructure
90% 10%
1,200
80%
1,000 70%
800 60%
Break-even 50% General construction
600 40% Electrical
20%
400 30% infrastructure
20% 60%
200
10%
0 0%
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Source: Colliers International Source: Colliers International

A gigawatt opportunity for co-location operators City-wise market entry and considerations
As discussed on page 2, India’s DC capacity gap compared to Europe
demonstrates the opportunity for investors. Working with Colliers Capital Considerations by city Mumbai Chennai Bengaluru Hyderabad
Markets & Investment Services team, we project that a prospective co-
location DC operator can achieve break even in about six years, considering Tax rebate
the costs for inputs such as land required, building and equipment like
power backup, transformers, racks and other operational expenditure. Power guarantee
Considering the customer stickiness in this business, as well as high barriers policy (power from
to entry, we believe that DC is a long-term play for investors looking for two substations)
long-term stabilized yields.
Land cost
We estimated that while setting up a DC, real estate built-up cost accounts
for only 20% of the capital expenditure. On the other hand, 80% accounts Under sea optical
for hardware and equipment and other parts of technology. We expect that cable19
since DC are energy-intensive, operators and developers ought to
increasingly adopt green and sustainable technologies, without Prone to maritime
compromising on the profitability. calamities20

Source: Colliers International

19. https://www.submarinenetworks.com/stations/asia/india
20. https://moes.gov.in/writereaddata/files/LS_US_1780_26072017.pdf

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COLLIERS RADAR DATA CENTERS | RESEARCH | INDIA | 22 OCTOBER 2020

DEFINITIONS
Co-location DC
A co-location DC is a large datacenter facility that rents out rack space to third-party clients for housing their servers or other network equipment.

Data center (DC)

A DC is a centralised location that offers dedicated space for organisations’ computer and networking systems and data. These centers collect, store, process,
and distributing data required by organisations for daily operations.

Hyperscale
A hyperscale DC offers a portfolio of highly scalable applications and storage services to businesses. According to IDC, a hyperscale DC offers upwards of 5,000
servers with an aggregated space of at least 10,000 sq.feet. across floors and buildings within the same campus.

Tiers
Tier 1 is the simplest infrastructure, while Tier 4 is the most complex and has the most redundant components. Each tier includes the required components of all
the tiers below it.
Tier 1: A Tier 1 DC has a single path for power and cooling and few, if any, redundant and backup components. It has an expected uptime of 99.671%
Tier 2: A Tier 2 DC has a single path for power and cooling and some redundant and backup components. It has an expected uptime of 99.741%
Tier 3: A Tier 3 DC has multiple paths for power and cooling and systems in place to update and maintain it without taking it offline. It has an expected uptime of
99.982%
Tier 4: A Tier 4 DC is built to be completely fault tolerant and has redundancy for every component. It has an expected uptime of 99.995%

Uptime
According to datacenters.com, DC uptime is the guaranteed annual availability of a DC. Offering uptime is one of the core business goals of a DC. Uptime is
basically the calculation of how often a particular resource is available during all the minutes or seconds of a given year.

Sources: Colliers International, www.racksolutions.com, https://avataracloud.com, https://www.dpfacilities.com

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Primary Authors: For further information, please contact:
Vaishnavi Bala Piyush Gupta
Assistant General Manager | Research | India Managing Director, Capital Markets & Investment Services | India
+91 78 9904 5476 +91 98 2032 1806
vaishnavi.bala@colliers.com piyush.gupta@colliers.com

Ashish Varanasi Shyam Arumugam

Assistant Manager | Research | India Senior Director | Head of Industrial & Logistics Services
+91 91 4803 8931 +91 99 4013 4637
ashish.varanasi@colliers.com shyam.arumugam@colliers.com

Contributor: Siddhart Goel

Senior Director | Research | India
Pratish Shraman +91 99 2048 8448
Manager | Capital Markets & Investment Services siddhart.goel@colliers.com
+91 78 9949 5651
pratish.shraman@colliers.com

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The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it.
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