India's AI-led data centre growth to fuel $5.7 bn in real estate investments by 2026

The surge in the adoption of artificial intelligence (AI), Internet-of-Things (IoT) and other digital technologies is propelling the growth of India's data centre industry, leading to an addition of 791 megawatts (MW) of capacity by 2026. This will subsequently create a demand for 10 million square feet of real estate space, attracting investments of $5.7 billion, according to a report published on Friday.

The report from JLL Research, the research arm of global real estate services firm JLL, said that with the increasing adoption of technologies, especially AI, the requirement for data centres in India is estimated to fall within the range of 650-800 MW between 2024 and 2026.

India is on track to become the third-largest economy, with a projected GDP of $5 trillion by 2027, with the digital economy contributing around 20 per cent, it said.

“This digital expansion is anticipated to propel the growth of India's data centre industry, projected to increase from 853 MW in 2023 to 1,645 MW by 2026. This increase in capacity will require an investment of $5.7 billion and approximately 10 million square feet of real estate,” said Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.

The country’s focus on AI is evident through the India AI mission, aimed at fostering innovation, upskilling the workforce, and ensuring responsible and ethical deployment of AI technology. At the same time, the country's data centre sector expanded from 350 MW in 2019 to 854 MW in 2023, in line with the increasing digital usage trends, as per JLL's earlier report published in December 2023.

According to the findings, Cloud Service Providers (CSPs), who essentially offer IT infrastructure systems primarily for data storage and computing power accessible through the Internet, have realigned their requirements to factor in AI-led demand.

In Mumbai, absorption nearly doubled to 44 per cent during this period as CSPs renewed their pace of absorption. This is followed by Hyderabad, NCR, Chennai, Pune and Kolkata, among others.

“The exponential growth in processing power and data volumes, driven by AI, necessitates the development of new data centres capable of meeting energy, processing, and cooling needs,” said Rachit Mohan, APAC Lead–Data Centre Leasing and Head-Data Centre Advisory, India, JLL.

To be sure, market research firm CareEdge Ratings’ study published in February also noted that India's data centre industry is on the brink of remarkable growth, with capacity expected to double in the next three years, from around 0.9 Gigawatts (GW) in 2023 to nearly 2GW in 2026. This additional capacity has created substantial investment prospects due to the estimated capex requirement of ₹50,000 crore in the next three years, it said.

While India accounts for 20 per cent of global data generation, the country currently holds only a 3 per cent share of the global data centre capacity.

The rating agency also anticipated that initiatives such as data localisation, tax incentives, and cost-saving measures introduced by various states will further incentivise substantial investments in the sector