AI data centres likely to be real-estate sector's next growth pillar

AI-led data centre investments are creating a long-term growth opportunity for real estate developers, though earnings gains are likely to materialise gradually.

Rapid expansion of artificial intelligence (AI) and hyperscale data centres, while emerging as a structural opportunity for India’s real estate sector, is likely to remain a gradual contributor to earnings over the long term, according to market watchers.

 

Unlike traditional commercial real estate, the competitive advantage for developers such as Anant Raj, Hiranandani Group, Lodha, DLF, and Mindspace Business Parks Real Estate Investment Trust (Reit) will increasingly depend on access to uninterrupted power supply, fibre connectivity, faster approvals, partnerships with global hyperscalers or specialist operators, and the financial strength to fund capital-intensive projects, rather than on land ownership alone.

 

“The sector is moving from being an optional diversification opportunity to becoming a strategic long-term asset class, but we are still in the early innings of earnings contribution. Industry estimates suggest India could witness ₹1.6-2 trillion of investments over the next five to seven years,” said Vijay Agrawal, managing director, infrastructure, Equirus Capital.

 

According to Pankaj Kumar, vice-president, fundamental research, Kotak Securities, India’s data centre information technology load is expected to increase from 1.6 gigawatt (Gw) in 2025-26 to 5 Gw by 2029-30 (FY30) and further to 14-15 Gw by 2034-35 (FY35). Built-up space requirements are projected to expand from around 25 million square feet (msf) currently to 60 msf by FY30 and nearly 160 msf by FY35, creating a sizeable opportunity for developers that can provide strategically located land or build and lease powered shells to data centre operators.

 

Among listed players, Kumar believes Lodha, DLF, Mindspace Reit, and Anant Raj are well positioned, backed by land availability, execution capabilities, and existing partnerships with global operators.

 

Lodha plans to develop around 1 Gw of build-to-suit data centre capacity at Palava near Mumbai with an investment of ₹10,000-11,000 crore and has committed to investing ₹1 trillion in a 2.5 Gw data centre park in Maharashtra. Anant Raj has announced investments of ₹20,000 crore in Haryana, in addition to an earlier ₹4,500 crore commitment in Andhra Pradesh, while Mindspace Reit is developing more than 1 msf of data centre space in Navi Mumbai with Princeton Digital Group.

 

However, analysts say the contribution to earnings is still some years away, as most announced projects remain under planning or construction. Around 60 per cent of India’s announced future capacity remains at the planning or early execution stage.

 

“We believe artificial intelligence (AI)-led data centre investments are structurally positive for the Indian real estate sector, but the impact on earnings and valuations will likely be gradual rather than immediate,” Agrawal said.

 

He observed that most projects are still under development, with construction typically taking three to four years before stabilised revenues begin. Developing a data centre requires capital expenditure of ₹80-100 crore per megawatt, higher than that for a conventional office building.

 

Akshay R Shetty, equity research analyst at Mirae Asset Sharekhan, said the data centre cycle is creating value selectively rather than across the sector. “Residential sales and office rentals remain far larger profit pools, and most announced projects are still at the memorandum of understanding (MoU), land-identification, or construction stage. What we are seeing today is land appreciation and one-time monetisation; recurring earnings will arrive only once powered buildings are completed, tenants take possession, and rental income starts flowing. That is a three-to-five-year story, not a two-quarter one.”

 

Analysts also pointed to power availability as the biggest bottleneck.

 

Shariq Merchant, associate director, investments, WhiteOak Capital Mutual Fund, said, “Power is the binding constraint, not land. To meet India’s AI-scale data centre ambitions, the country needs to build transmission infrastructure and secure dedicated power tieups at that scale."

 

Shetty added that financing, transmission infrastructure, suitable land, cooling infrastructure, and policy clarity would also determine the pace of execution.

 

On valuations, experts said investors have begun recognising the opportunity but remain focused on execution rather than announcements.

 

While the data centre opportunity has begun finding its way into valuations, analysts said markets are distinguishing between companies with operational assets and those that have merely announced expansion plans. Firms that have successfully commissioned capacity or secured long-term customer tieups are attracting greater investor confidence, while developers at the MoU or land-acquisition stage continue to face an execution discount.

 

“We believe markets have started recognising the opportunity, but valuations are still differentiating between announcements and execution,” Agrawal said, adding that there remains scope for selective rerating for companies that successfully commission projects and demonstrate recurring cash flows.

 

Merchant said data centres do not yet constitute a meaningful portion of valuations for most listed real estate firms because exposures remain relatively small. “Given today’s sub-scale exposures, data centres don’t yet form a meaningful part of valuations for most firms, which could leave scope for a rerating as capital deployment to the segment increases,” he said. At steady state, he added, data centres could trade at capitalisation rates not materially different from those of commercial real estate. 

Foundation first, returns later

 

·         Earnings boost to be gradual as most projects remain under development

 

·         Markets pricing long-term potential, not near-term profits

 

·         IT load seen rising from 1.6 Gw (FY26) to 5 Gw (FY30) and 14-15 Gw (FY35)

 

·         Built-up space demand projected to grow from 25 msf to 160 msf by FY35

 

·         ₹1.6-2 trillion of data centre investments expected over the next 5-7 years

 

·         60% of planned capacity remains at the planning or early execution stage