Data Centre Demand: Driving India’s Real Estate Sector

Vijay KR, Partner, Deloitte India shares with Realty+ his views on the impact of data centres on real estate demand. In our survey of CxO’s of leading real estate developers in India, eighty eight percent (88%) of respondents expected an increase in demand for new data centres, post COVID-19. We understood from the responses that they believed that this is due to factors such as an uptake in local data storage/management requirements which in turn, can be attributed to factors such work from home policies, regulations with respect to cross border data storage, increased acceptance of cloud-based solutions vs. onsite infrastructure, business continuity /cyber security and redundancy related requirements. The development of new data centers would boost demand for built up space and land for greenfield development. However, in the long run, technology changes could replace data centers with more newer forms of data storage or increase the efficacy of data storage and such factors could have a big impact on demand for real estate for data centers. What would the rise of data centres mean for sub sectors such as commercial and residential realty? In the short run, this is likely to have little or no impact on other sub sectors, however, in the long run, such developments may spur demand for other sub sectors. Increase in demand may be felt only if users/employees operating in such locations face long commutes and travel times. Let us also bear in mind that this phenomenon may be completed negated with technological advancements which may result in such facilities requiring skeletal manning and seamless remote operations. What are some cities expected to see the impact of the rise of data centres? As stated above, the traditional city areas may not see an uptake in demand right away. Peripheral areas of cities which can expect to see the impact are Hyderabad, Bengaluru, Chennai and Mumbai. We may also see uptake in Tier II cities, owing to the fact that the cost of development in these locations would be even lower that many suburbs of large metropolitan areas. What are some regulations expected from the government around data centres and how will they impact real estate? With the huge volumes of data being generated in India from sources such as government programs such ass Aadhar and ecommerce activity as well as pandemic-induced data gathering, local storage has seen a new impetus. Based on our survey ninety percent (90%) respondents said they have witnessed increased focus from the government on developing data centers. The government has taken several steps in this direction to create a convenient atmosphere for investors. Some of the policy measures being taken in this direction, are as below:

• Data Centre Policy, 2020 - Government is trying to develop this sub-sector by giving it the infrastructure status and incentivising investments
• Personal Data Protection Bill, 2019 - Data privacy and data localisation policy reforms/initiatives by the government mandate India Inc. to focus on local establishments.
• Setting up of a national portal for Artificial Intelligence (AI) - With the aim to develop AI footprint in India across sectors, a national portal for AI has been set up.
• Setting up data centre parks/economic zones – The government aims to introduce data centre economic zones to create favourable working conditions for the development of R&D units, IT companies, cloud services, etc.

Such policy measures will surely impact overall demand and as already highlighted above, any demand for new space will impact the sector positively. However, unlike other sub sectors this would not cause an immediate update in traditional neighbourhoods/CBD areas given the land prices, costs and developmental difficulties.