Huge opportunity for data centre operators
Investment in emerging asset classes in the first half of 2021 has increased by 33% on the year, according to a FICCI and Colliers report released on 29 July 2021. Data centres, topping asset class list, can provide a net yield of about 17% per annum, which makes them an attractive investment alternative.
Demand for these assets came from flexible workspaces and co-living because of globalisation, higher disposable incomes, and greater digital penetration which are transforming lifestyles and have given way to a shared economy in India, said the report ‘Unveiling the Potential of Emerging Real Assets.
Over the last three years, these new asset classes had started emerging, but the pandemic had somewhat dented demand of flexible workspaces and co-living assets. However, it further boosted demand for data centres due to increasing dependence on the internet and increasing digitization, which is estimated to still increase exponentially over the next few years.
Post COVID-19, Colliers expect to see growth in all these asset classes, hinging upon the re-opening of offices and educational institutes. Consequently, investors are taking notice and increasing their allocations, as they explore new avenues to diversify their portfolios and increase their returns.
“The millennial population will continue migrating to other towns and cities for education and employment despite the emergence of the work and study from home because it has become increasingly clear that these will not become permanent practices. We currently witness a muted demand for offices due to restrictions on operations for health and safety reasons,” said Ramesh Nair, Chief Executive Officer, India & Managing Director, Market Development, Asia, at Colliers.
“Most employees are keen on working from offices for at least some days a week. Similarly, not all forms of education can be imparted online, and, hence, students are increasingly looking at returning to their education campuses in other cities. Therefore, we foresee potential for well-planned and well-managed facilities that can cater to the work and housing needs of the Indian workforce that is no longer content with just well-equipped physical spaces but wants a nurturing, collaborative, and shared ecosystem,” he said.
India has about 1.2 megawatt per user of co-location DC capacity compared to Europe’s 19.1 MW per user DC capacity, providing a huge opportunity for data centre operators in the country. Colliers expect total co-location data centre stock to reach 20 million square feet (1.8 million square meters) by 2023, led by local and global data centre developers, from 9.5 million square feet at present.
“The emerging asset classes such as co-working, co-living, data centers within real estate are gaining significant traction and complimenting growth to the traditional office and residential assets,” elaborated Piyush Gupta, Managing Director, Capital Markets & Investment Services (India), Colliers.
“The demand in alternate assets is driven by fast-evolving customer preferences, technology penetration, digitization, and investors, as well as international players, are committing significant investments over the long term.”
As of 30 June 2021, the total flexible workspace stock in India stood at 30.7 million square feet (2.8 million square metres). Given the continued effects of COVID-19, Colliers expects operators will expand at a slow pace and forecast flexible workspaces to lease around 3 million square feet (0.27 million square meters) in 2021, similar to 2020.
Thereafter, as occupiers and their employees return to formal workspaces, the demand is expected to increase for well-located, high quality and efficient flexible workspaces resulting in their occupying 4.7% of the total commercial office stock by 2022.
Colliers forecasts co-living inventory in India to rise 24% YOY to reach 400,000 beds by 2022, driven by investments from private equity players, developers and individual investors, who have invested around Rs.3.1 billion (US$415 million) in top co-living operators during 2018-2021, inclusive of all stages of funding. The asset class can generate rental yields as high as 4% to 6%, compared to 1% to 2.5% in traditional residential assets. The company believes that investors are looking at these asset classes with greater rigour, as they look to build a comprehensive portfolio of assets across the sector. #investment #property #economy /fiinews.com
