By Hardik Pandit, Director of APICES Studio Pvt. Ltd.
India’s expanding data centre ecosystem is doing more than strengthening the country’s digital infrastructure—it is fundamentally influencing how land is allocated, cities are planned and real estate development is prioritised. From established commercial districts to emerging tier-II cities, the rapid growth of data centres is beginning to alter the dynamics of urban expansion in ways that developers, planners and policymakers can no longer overlook.
With India’s data centre market projected to grow from USD 10 billion in 2025 to approximately USD 22 billion by 2030, the implications extend well beyond technology. The sector is increasingly shaping decisions around commercial corridors, residential catchments and long-term urban planning.
Data Centres Are Emerging as a New Competitor for Urban Land
Modern data centres require expansive land parcels with reliable power infrastructure, fibre connectivity and strategic access. These requirements closely mirror those that traditionally attracted IT parks and large commercial developments, placing data centres in direct competition for some of India’s most valuable urban land.
India’s development pipeline currently stands at 3.1 GW, with 1.6 GW already operational, making the country the second-largest data centre market in Asia-Pacific. Mumbai is expected to exceed 1 GW of operational capacity by the end of 2026, while Hyderabad has emerged as the leading secondary data centre market in the region. At its core, this transformation is as much about land use as it is about digital infrastructure.
Investment patterns reinforce this trend. Between the first and third quarters of 2025, data centres accounted for 31 per cent of global private real estate funding, compared with a five-year average of 15 per cent. As institutional capital increasingly shifts towards digital infrastructure, conventional office-led developments are beginning to face growing competition for prime locations.
Data Centres Complement Rather Than Replace Office Development
Although cloud computing has enabled companies to optimise workplace strategies and operate more efficiently, India’s Grade-A office market continues to record healthy demand.
Global Capability Centres (GCCs), technology companies, financial institutions and flexible workspace operators remain active occupiers of premium office space. In this context, data centres should be viewed as a complementary real estate asset class that supports the digital economy rather than as a direct substitute for office developments.
The Residential Impact Extends Beyond Direct Employment
Unlike office buildings, data centres generate relatively fewer direct jobs for every square foot of built-up area. However, their broader economic contribution extends across multiple sectors.
Construction activity, facility management, logistics, telecom infrastructure, power networks and a wide range of ancillary services collectively stimulate demand for residential and commercial real estate in surrounding areas over the longer term.
Tier-II Cities Are Becoming Strategic Growth Destinations
The next phase of India’s data centre expansion is increasingly shifting towards tier-II cities such as Vizag and Naya Raipur.
These locations offer larger land parcels, comparatively lower acquisition costs and greater flexibility to expand power infrastructure. Once a data centre investment establishes itself in a city, it often acts as a catalyst for broader real estate activity, creating demand for warehousing, logistics facilities and workforce housing.
The ripple effect extends further. Growth in the data centre sector is also accelerating investment in supporting assets such as telecom infrastructure, substations, warehousing systems and energy parks. As a result, the data centre increasingly serves as the anchor for integrated industrial-digital real estate clusters.
Infrastructure Planning Will Determine Long-Term Sustainability
Among the most significant planning challenges associated with data centres are electricity and water requirements.
A single large-scale facility can consume as much electricity as a small town, making dedicated substations and transmission infrastructure essential. Without coordinated planning, such developments can place considerable pressure on urban power grids. However, locating facilities near high-capacity power corridors while encouraging renewable energy adoption can help mitigate these challenges.
Water availability presents an equally critical consideration. Large data centres may consume up to 5 million gallons per day, a volume comparable to the needs of a town with 10,000 to 50,000 residents. In water-stressed cities such as Chennai, this creates direct competition with residential consumption and places additional strain on municipal infrastructure.
To address these concerns, developers are increasingly adopting recycled water, treated sewage and air-cooled or hybrid cooling technologies. Coastal desalination plants are also being evaluated as part of future infrastructure planning. According to the author, these solutions must be integrated into urban planning frameworks from the outset rather than introduced as retrospective measures.
Land Values Reflect Rising Demand
The changing market dynamics are already being reflected in land prices.
During the second half of 2025, land parcels suitable for data centre development experienced a noticeable increase in value, particularly those located near established power and fibre connectivity corridors. Developers are actively prioritising pre-zoned sites, while hyperscalers and REITs continue to compete aggressively for land capable of supporting phased expansion with minimal regulatory hurdles.
In established locations, data centre-led land appreciation is currently ranging between 15 and 25 per cent annually.
Also Read: Trust, Transparency and Sustainability: The Three Pillars Shaping Modern Land Investments
A New Framework for Urban Development
Data centres have evolved into a distinct institutional real estate asset class, supported by long-term lease structures spanning 10 to 20 years, stable rental income and lease renewal rates exceeding 90 per cent at well-utilised facilities.
With India’s land-stage pipeline now exceeding 10.5 GW, the implications for urban planning continue to grow.
According to Hardik Pandit, Director of APICES Studio Pvt. Ltd., the emergence of data centres demands a shift in planning priorities. Rather than being treated as isolated developments, they should form an integral part of master planning strategies, with power availability carrying the same strategic importance as transport connectivity when determining future growth corridors.
In his view, cities that recognise this evolving relationship between digital infrastructure and real estate today will be better equipped to manage the next phase of urban development.
