Data Centers: Powering a New Wave of Real Estate Growth and Economic Momentum

India’s data center market, valued at approximately USD 10 billion in 2025, is projected to reach USD 22 billion by 2030. Over the same period, installed capacity could triple from approximately 1.5 GW to nearly 5 GW. Announced investments total approximately USD 60-70 billion over the next five years, while USD 20-25 billion is expected to materialise through land acquisition, construction and development.

The impact will extend well beyond technology, though. The real estate aspect of data centers across India’s principal markets which estimated to be 16 million square feet in April 2025 and is projected to reach nearly 55 million square feet by 2030. Data centers have therefore evolved from pure digital infrastructure into capital-intensive, real estate heavy assets requiring substantial investments in land, power, connectivity and supporting infrastructure. With artificial intelligence and cloud computing taking center stage, demand for data infrastructure has never been higher. India’s monthly data consumption increased from 4.5 exabytes in FY 2018 to 12.9 exabytes in FY 2025, driven by digital payments, e-commerce, social media and streaming platforms.

However, the growth cannot be determined merely on the capacity announced. It depends on whether that capacity can be converted into powered, connected, approved and commercially occupied facilities.

What converts digital demand into commercially viable capacity?

A robust data center ecosystem depends on six key drivers: proactive and industry-friendly government policies; affordable economic resources; global connectivity through submarine cables; adequate land and supporting infrastructure; cost-effective access to power; and readily available manpower.

India does have a cost advantage with data center construction costs estimated approx. at USD 6-7 million per MW, lower than those in other markets such as Singapore and Japan. However, lower construction costs alone do not make a project commercially viable.

Energy typically accounts for approximately 60-70% of data center operating costs, with electricity cost and reliability outweighing land cost, fiscal incentives and labour availability in determining project viability. Cheap land or a capital subsidy cannot compensate indefinitely for unreliable or expensive power.

For private players, the value of an incentive must therefore be measured against the additional capital expenditure, delays and operational risks associated with the location. Incentives will influence investment decisions only when they meaningfully improve the project's risk-adjusted return.

Policies regarding data centers

The Government of India and several State Governments introduced their respective data center policies around 2020. While these policies were an important step forward, some require updating to reflect technological, economic and geopolitical changes.

More importantly, though, implementation gaps continue to affect viability. Operators face inconsistent approval procedures, uncertain electricity tariffs, insufficient terrestrial network infrastructure, the absence of specialised building standards and cumbersome processes for claiming capital subsidies, stamp-duty exemptions and power-tariff reimbursements. The need for time-bound single-window clearances, deemed approvals for non-critical permissions and a national Data Center Readiness Index has already been recognised at the policy level. However, the difference between announcing incentives and implementing them remains significant.

Certain States offer incentives for data centers built outside urban areas. These locations may offer lower land costs but often lack reliable power, roads, fibre connectivity and adequately equipped local authorities. The initial savings may therefore be offset by higher capital expenditure and longer development timelines.

The Union Budget 2026-27: Providing long-term policy certainty

Between 2020 and 2024, India’s data enter sector attracted approximately USD 13-15 billion in investment, with foreign institutional investors accounting for nearly 80% of capital inflows. Long-term tax and regulatory certainty will be important if India is to sustain this interest.

The Union Budget 2026-27 introduces a targeted tax framework for eligible foreign companies providing cloud services through India based data centers.

Under the proposed framework, qualifying foreign cloud service providers would be eligible for an exemption a tax holiday until 2047, subject to specified conditions. Services to Indian customers must be provided through an Indian reseller entity. Where the Indian data center operator is a related party of the foreign company and operates on a cost-plus model, a safe harbour margin of 15% on cost has also been proposed.

The importance of these measures extends beyond the immediate tax benefit. Data centers involve substantial upfront capital, long development periods and phased capacity expansion. A policy horizon extending to 2047 provides greater visibility when investors commit to large land parcels, long-term power arrangements and multi-phase campuses. The Budget also signals India's intention to move from being primarily a consumer of global digital services to becoming a production base for cloud computing and digital intelligence.

However, tax certainty cannot by itself ensure commercial viability. Investors will continue to assess whether projects can obtain adequate power, complete approvals on time, secure customers and operate at a competitive cost. The value of the tax holiday will ultimately depend on whether India can provide the physical infrastructure required to use it.

How are data centers impacting real estate in India?

From land absorption to infrastructure-ready land

Data center campuses require large, contiguous land parcels capable of accommodating server halls, cooling systems, substations, backup infrastructure and future expansion, while also meeting high structural and operational requirements. With facilities exceeding 50 MW projected to account for nearly two-thirds of India's capacity by 2030, demand for large industrial sites capable of supporting phased campus development is likely to increase.

However, this growth will not increase the value of all industrial land equally. Sites with scalable power, multiple fibre routes, clear title, suitable access and development approvals will command an infrastructure-readiness premium. A costlier site that can be developed and occupied quickly may therefore be more valuable than inexpensive land lacking power and connectivity.

India's development pipeline illustrates this distinction. The country currently has approximately 1.6 GW of operational capacity and another 3.1 GW under construction or planned, while more than 10.5 GW remains at the land stage. This land-stage capacity represents potential, but may not yet have secured power, financing, approvals, construction commitments or customers. By contrast, vacancy in operational facilities declined to approximately 12.9% by the end of 2025, indicating continued demand for completed capacity.

The sector’s real estate impact should therefore not be measured only through investment announcements and land acquisitions. The more relevant question is how much of the pipeline becomes powered, constructed, contracted and occupied capacity.

Digital mapping beyond metropolitan cities

For years, India's data center sector has been concentrated in Mumbai, Chennai, Delhi NCR, Hyderabad, Bengaluru and Pune. Mumbai benefits from its position as India’s financial capital, submarine cable connectivity and established infrastructure. The city is expected to cross 1 GW of operational capacity by the end of 2026. Chennai serves as an important international data gateway, while Bengaluru and Hyderabad are supported by their technology, cloud and software ecosystems. Delhi NCR serves government and enterprise demand, and Pune has emerged as an important secondary market.

These cities will continue to dominate the sector, but high land costs, congestion and increasing pressure on power infrastructure are encouraging operators to consider new locations.

Central and State Governments have consequently promoted dedicated data center parks by offering subsidised land, fiscal incentives and streamlined approvals. At the Central level, 33 Special Economic Zones with available power and water were identified for potential consideration, with data center economic zones proposed across States including Andhra Pradesh, Karnataka, Maharashtra, Haryana, Uttar Pradesh, Gujarat and Rajasthan. When properly planned, such parks can combine land, power, fibre connectivity and approvals within a defined geography. They may also attract equipment suppliers, network operators, maintenance providers and energy companies, increasing land utilisation around the primary facility.

At the same time, edge and micro data centers are bringing computing capacity closer to users, creating opportunities for Tier-2 cities where demand is supported by regional businesses, manufacturing clusters, government services and low-latency applications.

However, low land costs and State incentives alone will not shift demand away from established metropolitan hubs. Operators will continue to assess customer demand, latency, fibre routes, power reliability, climate exposure and access to skilled manpower. The locations that succeed will be those that provide an integrated operating environment, rather than merely inexpensive land.

How are power and renewable energy reshaping industrial real estate?

Power is a key factor determining where data centers are built and, consequently, where real-estate demand grows. National generation capacity is relevant, but local access to substations, transmission lines and reliable power corridors is decisive. Industrial land with scalable power access, therefore, commands increasing interest.

Policies supporting renewable energy, open-access power and energy banking have further influenced site selection. Subject to storage, grid and regulatory arrangements, renewable sources could potentially meet up to 80% of a data center’s electricity demand. Renewable energy is therefore becoming a commercial requirement, as lower power costs can improve operating margins and large cloud customers increasingly consider energy sourcing and efficiency when selecting facilities.

AI and high-performance computing are also increasing power and cooling requirements. Average rack densities have risen from approximately 1-3 kW in the early 2000s to around 8 kW today. Depending on its cooling design and operating conditions, a 100 MW hyperscale facility using water-based cooling may consume approximately two million litres of water a day for on-site cooling. Sites must therefore be assessed not only for land and power, but also for reliable fibre connectivity and sustainable cooling resources.

The closer a parcel is to reliable power, renewable infrastructure, fibre connectivity and adequate cooling resources, the more commercially attractive it becomes.

How do developers capture value?

The opportunity for real estate developers extends beyond selling land. Data centers are not valued like conventional industrial buildings. Their value depends on contracted revenues, occupancy, tenant quality, secured power, connectivity, energy efficiency, lifecycle expenditure and development stage.

Land creates the opportunity, but power, connectivity and contracted capacity create much of the investment value. India’s data center capitalisation rates are estimated at approximately 7.5-8.5%, compared with around 3.9-6.5% in other markets such as Japan, Singapore and the United States. The higher yields reflect India’s earlier market stage, regulatory uncertainty and execution risk. Developers may capture value by selling infrastructure-ready land, building powered shells, entering joint ventures or retaining facilities for annuity income.

For instance, the proposed Palava data center park illustrates this hybrid approach. Of a reported 400-acre parcel, approximately 300 acres are intended for sale to operators, while 100 acres may be retained for the developer’s own portfolio. The land sales are expected to generate more than INR 12,000 crore and help fund approximately INR 10,000 crore required to construct 1 GW of build-to-suit powered shells.

A reported transaction valued the land at approximately INR 21-23 crore per acre, representing an eightfold increase over four years. While project-specific, it shows how power, connectivity and approvals can materially alter industrial land values.

This model combines immediate land monetisation with long-term rental potential. It also shows why developers with large land banks will not benefit equally. The advantage lies in converting land into powered, connected and commercially usable infrastructure.

However, that also carries risk. Data centers require substantial capital before rental income begins, and returns depend on timely construction, customer commitments and utilisation. Announced plans must therefore be distinguished from operational and income-generating assets.

Conclusion

India's data center boom is no longer just about servers and storage; it is about land, power and long-term infrastructure. A market projected to grow from USD 10 billion to USD 22 billion by 2030 will create substantial real estate opportunities, but the gains will not be evenly distributed. The Union Budget 2026 27 provides long-term policy certainty, while demand for cloud and AI capacity is attracting global and domestic investment. However, not every parcel, investment announcement or planned megawatt will create equal value.

Growth will concentrate where land, power, connectivity, approvals and customer demand converge. The eventual winners will not simply be those who hold the most land, but those who can convert it into powered, connected, approved and contracted capacity.