Chennai Data Center capacity to

 Chennai Data Center capacity to witness
2.5x growth to reach 133 MW* by 2023: JLL

 The city accounts for a 12% share of National data center capacity

• Preferred location due to four cable landings, reliable power supply and strategic location
• Ambattur and Siruseri to gain prominence as Data center hubs

 Note: MW*- indicates IT power load

Chennai data center capacity is expected to grow by 2.5 times to 133 MW by 2023 owing to demand from cloud players as per a JLL report titled ‘2020 India Data Center Market Update’.

“Chennai is expected to remain as leading data center destination due to its strategic location, four cable landings and reliable power supply. The city witnessed 16 MW absorption in 2020 primarily driven by demand from cloud players. The key data center hubs of Ambattur and Siruseri are expected to add 79 MW during 2021-23. Cloud players are expected to prefer high quality, scalable data centers facilities offered by the operators. The presence of IT/ITeS, BFSI and manufacturing sector is also expected to drive demand” said Siva Krishnan, Managing Director - Chennai & Coimbatore, JLL India.

“India’s colocation data center industry witnessed unprecedented absorption of 102 MW during 2020, notching higher absorption than most key markets of Europe and America. Fuelled by longer-term trends of rising cloud adoption, increasing digitalisation and progressive legislation, we anticipate increased demand for colocation space nationwide. Rising demand led data center operators and developers to pursue ambitious expansion plans, while some adopted the acquisition route to enter Indian markets, which we expect to continue. Colo capacity grew by around 28% to reach 447 MW in 2020 from 350 MW in 2019” said Rachit Mohan, Head, Data Center Advisory (India), JLL.

As the data centre landscape continues to evolve, the industry is expected to grow exponentially to reach 1,007 MW by 2023 from its existing capacity of 447 MW. With the growing reliance on digital connectivity, demand is likely to ramp up further due to the imminent rollout of 5G rollout, IoT-linked devices, data localisation and cloud adoption. India’s data center sector will require an investment of USD 3.7 billion over the next three years to fulfil the 6 million sq. ft greenfield development opportunity for the industry.

 

Mumbai and Chennai are expected to drive 73% of the sector’s total capacity addition during 2021-23, while other cities like Hyderabad and Delhi NCR emerging as new hotspots. Robust pre-commitments by global cloud players in the established markets of Mumbai and Pune continues owing to prevailing infrastructure, while new markets like Hyderabad are gaining momentum in this space.

“India’s data center industry is expected to add 560 MW during 2021-23 leading to a real estate requirement of 6 million sq ft. The supply addition will be complemented by densification of racks and servers, sustainable energy sourcing and use of indigenous resources. Rising demand is leading operators to pursue ambitious expansion plans, while some are adopting the acquisition route to enter Indian markets. Various policies and reforms brought in by the Government to turn India into a ‘Global Data Hub’ has provided necessary measures to achieve this goal,” said Dr Samantak Das, Chief Economist and Head of Research & REIS (India), JLL.

The increasing usage of e-commerce, EdTech and digital transactions placed the existing IT infrastructure of enterprises under pressure. Overall data usage increased by 36% in 2020 due to increased usage of smartphones and fixed wireless access as per Nokia Mobile Broadband India Traffic Index 2021. Enterprises have been upgrading their IT infrastructure by adopting hybrid models, given their budget constraints. Technology trends like 5G rollout, IoT-linked devices and AI will also result in stronger growth in demand.

 According to JLL, the rapid growth of the data center industry has led to increased energy consumption and environmental impact. Increasingly, global cloud players setting up bases in India aim to reduce their carbon footprint and are looking at data centers that provide sustainable energy alternatives and are entering renewable energy power contracts. India’s renewable energy capacity at 90 gigawatts accounts for a 25% share of the installed power capacity and provides tremendous scope for the development of green data centers.

With 10.6 million sq. ft, Bengaluru leads in

Key Highlights:

• Bengaluru leads the flex space stock in the country at 10.6 million sq. ft.
• The city also has a higher penetration of flex space in the country at 4.8% as compared to the national average of 3%
• Bengaluru and Delhi NCR together account for more than 50% of the flex space stock in India, with Bengaluru housing around 10.6 million sq ft of such spaces
  
  
  

  With 10.6 million sq. ft, Bengaluru leads in flex space
  stock in the country: JLL

  The city’s flex space penetration at 4.8% is higher than the national average at 3%

  Bengaluru leads the flex space stock in the country at 10.6 million sq. ft according to JLL report - Reimagine Flexspaces A 360⁰ view. The city also has a higher penetration of flex space in the country at 4.8% as compared to the national average of 3%. Market penetration basically represents flex space as a proportion of total office stock. Bengaluru and Delhi NCR together account for more than 50% of the flex space stock in India, with Bengaluru housing around 10.6 million sq ft of such spaces.

   The demand for flexible spaces in large cities such as Bengaluru is likely to grow, with businesses having a greater need for such spaces to accommodate portfolio expansion and contraction along with crisis support to flex their space needs as necessary.

  
  
  
  
  “Bengaluru has one of the best ecosystems for the development and evolution of flex spaces in the country. Therefore, it is no wonder that, today, the city almost leads in flex apace absorption owing to its large numbers of startups and IT/ITES companies, “saidRahul Arora, Managing Director, Bengaluru, JLL.

   The country is expected to witness deeper penetration, throughout 2021 and beyond, the flex space market is forecast to grow at a slower pace and more organically. Irrespective of several short-term disruptions and challenges, increased demand from large enterprises, will support the growth of the flex space market to more than 50 million sq. ft. by 2023. It is anticipated that flexible space will grow by an average of around 15-20% per annum over the next three-to-four years, although this trajectory will not be linear. Previously expected levels of new investment are unlikely to be seen, as operators look to solidify their existing operations and it is likely that certain operators will not be able to weather the storm.

   As corporates return to the workplace, they are likely to further leverage flexible space to reduce capital expenditure and create cost savings, while allowing for split teams and de-densification requirements. Developments that initially drove the growth of the flex market, like the focus on utilizing workplaces to boost productivity and drive dynamic work cultures, enhance emphasis on employee health etc., will continue to influence the next phase in India.

   “While the flex-space market more than tripled in the last 3 years, the momentum going ahead will be relatively slower. Players are likely to tread cautiously, and the overall market is expected to expand 1.5 times from the current size. At the same time, demand for flexible space is likely to remain resilient and we expect the size of the flex space market to cross 50 mn sq. ft. by 2023 led by increased demand from larger enterprises,” Dr Samantak Das, Chief Economist and Head of Research & REIS, JLL India.

   In the commercial real estate space, flex spaces have become synonymous with adaptability. As preferences evolve, a range of flexible space options have taken shape to suit changing business needs, including remote working. To respond to the current disruption, and to lay the groundwork to deal with what may be permanent changes for the industry, flex space operators have been agile and are re calibrating their business strategies. They are now laying a greater emphasis on profitability and evolving strategies to ensure stable occupancy levels in their flex space centres.

   Large enterprises to drive demand

   The densification trend that had emerged over the last decade will likely reverse with enterprises leaning on flexible office space to relax space density. Large enterprises might also look at splitting up their offices to reduce commute times and dependence on public transport. However, with expected economic uncertainty, companies will be hesitant to commit large capital to real estate. In terms of strategy, leasing directly to a third-party flexible space operator is the most widely adopted model. A partnership model allows both landlords and operators to leverage each other’s strengths. There are several ways to implement a partnership, with revenue shares and management contracts being the most common. Under the revenue share option, both parties split the upside. In the case of a management contract, the operator gets a fixed payment, while the landlord assumes all the leasing risk and enjoys the upside. Despite the benefits of this approach, partnerships are relatively less common in India for now.

   What the future holds

  The entry of more than 300 flex space operators into the country helped commoditize the market. Prior to the pandemic, most of these operators were focused on attaining scale and capturing market share. However, the availability of capital, in the current scenario, will be a challenge. Players who have embarked on aggressive growth so far will find themselves strapped for capital. In such a scenario, the market is likely to witness consolidation activity driven by larger operators with financial wherewithal acquiring smaller ones. Flexible workplaces will continue to be a major influence on the future direction of the Indian office market. There will be an even greater focus on providing customized office space solutions and demand for flexible space will not only return but increase, as occupiers embrace the core plus flex model more widely. Despite the massive disruption from the impact of COVID-19, the future of flexible workspaces will remain optimistic

Hyderabad real estate – A road map amid the COVID -19 crisis

Hyderabad emerges most resilient; returns to normalcy faster than other cities: JLL report

• The city has the least unsold inventory as on H1 2020 that can be offloaded in next two years
• It stayed strong with the second highest residential launches over second quarter of 2020
• The city led India’s office supply with a 30% share in H1 2020, significantly driving the country’s office absorption with an 18% share during same period

Hyderabad continues to show resilience and its real estate dynamics kept up the momentum according to the JLL-CII report “Hyderabad Real Estate - A Road Map amid the COVID -19 crisis,’’ launched today. The city’s real estate performance was far better in H1 2020 as compared to other cities in India. Its formal economy was one of the first in urban India that resumed its stability as the lockdown rules were relaxed.

Despite the nationwide lockdown, in Q2 2020, Hyderabad continued to witness relatively good office leasing and residential sales. Once construction activities resumed in May 2020, the city also saw supply of new office buildings in addition to new residential projects. Hyderabad also led India’s office supply with a 30% share in H1 2020, significantly driving the country’s office absorption with an 18% share during the same period. Further, the city reported strong sales with the least unsold inventory in India which can be offloaded within two years. 

“Hyderabad’s resilience comes from the confidence of doing business instilled by the state government. The business-friendly policies of the government has helped corporates leverage the existing ecosystem in the state to maximize output and emerge as the destination of choice. For example, growth of the IT sector in the state: While national IT exports grew by 8% in 2019-20, IT exports here grew by 18% in the same period. Owing to its robust and fast developing infrastructure along with ease of living, offering a cosmopolitan environment, today, Hyderabad is a major destination for India’s young workforce,” said Ramesh Nair, CEO & Country Head, India, JLL.

In JLL’s latest GRETI (Global Real Estate Transparency Index) report in 2020, India experienced higher improvement and it is in the cusp of becoming a transparent economy. The focus of the government on sustainability transparency with focus on wellness and PropTech adoption drove this improvement.

Hyderabad has been one of the fore runners in India in these parameters. This further strengthens the investor confidence in the city’s real estate. Through the much-appreciated TS-iPass, ICT Policy and other investment friendly initiatives by the state government, the city has witnessed a major economic growth in the last six years.

“Hyderabad’s positive reaction to the crisis has reflected tremendously in the city’s real estate performance. The focus of the government on business-friendly policies has helped Hyderabad emerge as a one of the leaders despite the global pandemic,” said Sandip Patnaik, Managing Director – Hyderabad, JLL. He further added, “Impressive investment in the infrastructure sector and the state’s fast track execution has tremendously contributed to the city’s real estate growth. An active real estate market and strong economic growth along with a thriving start-up culture have helped the city to gain one of the leading positions globally.”

To understand the depth of the crisis and the reaction of stakeholders, JLL conducted a survey to understand the strategies of the top ten developers in various sectors and interviewed corporate leaders of companies in Hyderabad.

The results of these surveys and discussions on each sector is summarised in the following sections.   

Office Real Estate - As the city opened in early May 2020, construction activity resumed in a few projects and a few office projects started operations by June 2020. A total supply of 3.7 million sq. ft was added in H1 2020. Demand dynamics also remained strong as a few key office leases with large area were closed after the lockdown was relaxed in May 2020. The city reported an absorption of 2.1 million sq. ft in H1 2020 which dropped the city’s vacancy rate to 9.2 %.

Residential Real Estate - Hyderabad witnessed highest quarterly launches ever during the lockdown period in Q2 2020. Most of these launches were in the northern and eastern submarkets. Despite the healthy volume (of launches), good sales kept the city’s unsold inventory at the lowest in the country.  Construction resumed in many projects in the city, albeit at a slow pace due to reverse migration of construction laborer’s during the lock down. 

Retail Real Estate - Developers in Hyderabad offered rental waivers or rental deferments to battle the ongoing crisis. Highstreets in Hyderabad, meanwhile, gave some relief to the retailers as they are a relatively cost-effective solution to malls in these tough times. Leasing activity has continued in Highstreet retail properties. Construction of upcoming malls has resumed, although at a slow pace.

Urban infrastructure development of fringe area with tech solutions, diversification of economic base and development of new economic hubs will assist Hyderabad’s real estate sector to overcome this storm and emerge stronger. Digital technology solutions like the Internet of Things (IoT), AI, sensors and geospatial technology, can be used to gather accurate data and detect real time problems to efficiently manage the urban infrastructure of the city. As office assets showed confidence of high growth and stable returns for the medium to long-term, global institutional investors and sovereign wealth funds showed an increasing interest in the city over the past few years.

While the state government gave confidence to corporates through its business-friendly policy support in H1 2020, it utilised the lockdown period to upgrade the city’s urban infrastructure and aesthetics by employing labour who otherwise would have been unemployed. Hyderabad recorded the highest office net absorption in 2019 (as a proportion of existing stock) compared to any city globally, while standing among the world’s best-performing cities for prime office rental growth according to the recent JLL City Momentum Index (CMI) 2020 report.