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India Poised for Massive Data Center Growth

Andrew Fray • 15/10/2018

Written by Kevin Imboden, Director of Research, Data Center Advisory Group, Cushman & Wakefield, and Raja Seetharaman, Co-Founder, Propstack.

A data center is critical for enterprises operating in the presently borderless world. Whether private or public, the data center is essential for hosting mission-critical applications. Worldwide, the data center infrastructure and services business is a very large emerging business. However, very few countries have the basic requirements in terms of infrastructure and policies to become a global data center hub. In India, the world’s largest democracy, the data economy provides endless opportunities for citizens, businesses, markets, politics, culture, sports and entertainment. India has robust domestic data consumption and a variety of other enormously positive indicators that will help it advance toward a data-driven economy. In its recent budget, the Indian government has been emphasizing importance of creating a cloud warehouse that will safely store enormous amounts of digital data and has urged the industry to make this happen.

Data Center Operating Models and Services

 Data centers may operate on two main models. One is for an organization to build, operate, and manage its own data center for internal purposes, known locally as a captive data center. The other is the outsourced model, where organizations lease space and hosting services from external data center providers. These providers offer the security, power, and cooling needs for the data center and customers can use the space to deploy their servers and other equipment.

Initially, captive data centers had a dominant share of the market but are gradually ceding ground to third-party service providers. They currently account for roughly a 40% share, compared to 20% five years ago. Over 70% of the projected growth in third-party data centers will be driven by the verticals of BFSI (banking, financial services, and insurance), media and entertainment, telecom and retail, among others. High opportunity cost of reliable power supply as well as real estate is increasingly tipping the scale in favor of third-party hosting. Third-party data centers are increasingly consolidating their position through steps in technology and value-added services.

Cloud service adoption is driving much of the data center market. The Indian market in this regard is unique due to the rapid growth in all cloud segments such as IaaS and PaaS.

Key segments driving the major growth in cloud services across all India include:

  • Cloud infrastructure as a service
  • Cloud management and security service
  • Cloud application infrastructure platform as a service

Global Scenario

The global data center market is dominated by the Americas with 40% of market share or $68 billion in investments followed by Europe and Russia together at 32% or $54 billion. The APAC market is growing rapidly with a 25% market share at $42 billion and the Middle East and Africa region hold a 3% share with nearly $6 billion in investments. The key theme driving growth across Asia-Pacific is the explosive digital needs of emerging economies with huge populations such as China, India, and Indonesia.

While global investments in large data center segments are estimated to grow in single digits, Asia Pacific will be the fastest growing region over the next five years. Today, APAC accounts for one-quarter of worldwide data center infrastructure spend at $42 billion. China and India stand to exploit the market the most and fuel the growth in APAC. Growth rates in the mature data center markets have slowed down and will remain sluggish. India shared around 1.8% of the global data center IT infrastructure and 8.6% in APAC in 2017. India is the second-largest market for data center infrastructure and second-fastest-growing market in Asia/Pacific after China.

India will be a $4.5 billion data center market by 2018 and will reach $7 billion by 2020, with most interest focused on the large metropolitan areas of Mumbai, New Delhi, Chennai, and the IT hub of Bangalore. With the current investment in the data center infrastructure business by various companies, this would further enhance India’s market share in the global and APAC markets, making India an attractive destination for the data center business in the region. As per the current growth rate estimation, India’s share in the global market and APAC could go up to 4.5% and 12% respectively. Cross-border investment into the data center sector stems from a variety of countries, including the American cloud giants of Microsoft, Google, IBM, and Amazon, Chinese conglomerate Alibaba, Japanese investment from NTT into Netmagic, and Singaporean investors like Ascendas.

Demand Drivers in India – Digital Data Traffic Growth

The size of the digital populations in India presents a huge potential demand for data center infrastructure. Digital data in India was around 40,000 petabytes in 2010 and this number is projected to shoot up to 2.3 million petabytes by 2020, twice as fast as the worldwide rate.

Annual global data center IP traffic is 4.1 zettabytes at present and will reach 8.6 zettabytes by the end of 2018. (Zettabyte = 1 million Petabytes). With 900 million+ mobile connections, 100 million+ active mobile data users and increasing number of connected devices, the amount of consumer and enterprise data will grow exponentially. India had a data center capacity of 1.3 million square feet in 2007 and is expected to go up to 10.9 million square feet by the end of 2018 at a compounded annual growth rate of 19.8% (excluding the data centers smaller than 1,000 square feet). Data center space constructed between 2008 and 2010 was 1.7 million square feet greater than in the last 15 years combined.

The primary drivers of the data center industry in India include:

  • The availability of abundant real estate and competitive policies
  • Information and communications technology-capable population
  • Continuing growth of India’s mobile market and internet penetration

Outsourcing requirements of BFSI and government services are fueling the multi-tenant data center segment. Adding to the momentum is the rising IT penetration and social media consumption in the country and Telcos’ transition to 4G/LTE technology. A bigger demand potential in Indian data centers’ market is being generated by public investments in large scale digitization, christened as the Digital India Scheme.

India will be the second-largest investor in the data center market in the coming years and is predicted to become the fifth-largest data center market in the world by 2050.

Planned/Ongoing Investments

  • Microsoft continuing to manage and expand three Azure cloud service data centers in Mumbai, Pune and Chennai
  •  IBM’s plans to set up its second data center in India in addition an existing one in Mumbai
  • Google Cloud Platform recently entered India
  • Alibaba Cloud launched in Mumbai in January 2018
  • Amazon Web Services has seen a 60% increase in customers across Mumbai since launch
  • CtrlS has launched a $73 million project in Bangalore and will be adding new centers in Hyderabad and Mumbai within three years
  • GPX Global Systems planning a 16 MW center in Mumbai to be finished Q1 2019
  • The state of Tamil Nadu has completed a $9 million center in Tiruchirappalli to back up government data
  • Netmagic Solutions is spending $175 million to complete centers in Mumbai and Bangalore by the end of April
  • ESDS Software & Nxt Gen Data Center & Cloud Technologies have announced funding & expansion plans in the near to medium term.
  • Ascendas-Singbridge is investing $1 billion on new construction in Chennai, Mumbai, and Hyderabad

Propstack intends to create a data platform which will provide information on the ready and future availability of data center space in India along with technical specifications and costs, helping to grow the industry and make decision making easier.

To find out more about the factors investors should look at when considering data center investment, check out our blog post.

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