Data Centres as a CRE Investment Class in India: Outlook and Returns

India's data centre market is undergoing a transformation of historic proportions. Driven by cloud adoption, AI/ML workload growth, data localisation requirements under the Digital Personal Data Protection Act, and government digitisation programmes, India's installed data centre capacity is projected to exceed 2,000 MW by 2027 — tripling from current levels. For real estate investors, this creates a compelling new asset class with structural demand tailwinds, long-term contractual income, and investment-grade tenants.

The financial characteristics of Indian data centre investments compare favourably to other CRE asset classes. Leases are typically structured as 10–15 year triple-net agreements with hyperscaler tenants (AWS, Google Cloud, Microsoft Azure) or large enterprises — providing income certainty that far exceeds typical office or industrial leases. Cap rates for Indian data centres range from 7.5–10% depending on vintage, location, and tenant credit, compared to 6.5–8% for prime office. The combination of higher yield, longer lease term, and investment-grade tenants creates an attractive risk-adjusted return profile.

Navi Mumbai has emerged as India's primary data centre hub, hosting over 40% of the country's installed capacity across operators including NTT, Yotta, Nxtra, and STT GDC. The concentration reflects Mumbai's role as India's financial capital and internet exchange hub — multiple dark fibre routes, proximity to submarine cable landing stations, and a large enterprise customer base. Chennai has established itself as the secondary hub, serving as a submarine cable landing hub for Asia-Pacific connectivity. Hyderabad, Bengaluru, and Pune are growing markets driven by the technology sector.

The principal risks in Indian data centre investment include power supply reliability (India's grid has improved significantly but remains below developed market standards, requiring significant on-site backup power investment), water availability for cooling (an increasingly constrained resource in many Indian cities), and the rapidly evolving technology landscape (shorter technology cycles may accelerate building obsolescence for older vintage facilities).

For institutional investors, the data centre sector offers the best combination of growth, income, and defensive characteristics of any Indian real estate asset class — making it a core allocation for sophisticated CRE portfolios with a 7–10 year horizon.