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Over the past four to five years, the landscape of alternative asset investments in India has undergone a significant transformation. Cumulative investments in this sector have surged to approximately USD 2.0 billion between 2019 and the first half of 2023, and the driving force behind this growth has been foreign investors. Foreign contributions accounted for a substantial 78% of the total investments in alternative assets during this period, reflecting their eagerness to explore new markets and diversify their portfolios while seeking enhanced risk-adjusted returns.
Institutional investors, traditionally inclined towards core asset classes, have been diversifying into non-core assets such as data centers, life sciences, and co-living. This shift in focus has been propelled by various factors, including the rise of the shared economy, increased digitalization, and supportive government policies. Notably, investments in alternative assets have witnessed consistent growth since 2019, with 2022 marking a remarkable milestone as investment inflows surged to USD 0.9 billion, a staggering 4.4-fold increase compared to 2019. Within this context, foreign investments have played a pivotal role, experiencing a six-fold increase in 2022 compared to 2019.
The continued faith of foreign investors in the Indian real estate market can be attributed to India's status as one of the fastest-growing economies across the Asia-Pacific region, Europe, and the Americas. The International Monetary Fund (IMF) has pegged India's GDP growth at 6.6% for 2023. As India's economic outlook remains robust in the face of global challenges, the business case for alternative investments is expected to strengthen further.
Among the various alternative asset classes, data centers have attracted significant institutional inflows, totaling USD 1 billion since 2019, with substantial growth witnessed over the past five years. While other segments like life sciences and co-living have also gained traction, data centers stand out due to their robust growth fundamentals and promising future prospects. During the 2019-2023 period, data centers accounted for a substantial 51% share of total investments in alternative assets.
The explosive growth in data consumption has been a driving force behind the expansion and development of data centers in India over the last five years. Investors have been drawn to the burgeoning demand and attractive returns offered by data centers, which have consistently delivered returns in the range of 16-18%. This far outpaces the yields of around 8-9% typically associated with core office assets, further fueling investor interest in this space.
Given the capital-intensive nature and technical expertise required in data center operations, investors are increasingly forming partnerships with data center operators who are actively expanding their presence in India. Global hyperscale companies also view India as a prime market for expansion, driven by the surging demand for cloud services.
The year 2023 has witnessed landmark investments and pre-commitments from global hyperscalers in India's data center sector, as they seek to establish their facilities tailored to their specific needs. Additionally, data centers are witnessing substantial platform deals between developers and investors, aiming to expand their businesses significantly.
In May 2023, Lumina CloudInfra, a data center platform owned and managed by Blackstone's Real Estate and Tactical Opportunities funds, unveiled plans to invest more than USD 300 million in developing a hyperscale data center campus in Navi Mumbai. Similarly, Reliance Industries has partnered with Brookfield Infrastructure and Digital Realty to develop data centers in select locations across India.
Over the past five years, global investors have shown a particular preference for data centers, accounting for over 90% of total investments in the sector during this period. Foreign investments have been instrumental in helping data center operators achieve the desired scale, expand into new markets, and gain expertise in development and operations by providing access to capital. Moreover, granting 'infrastructure' status to data centers has facilitated access to concessional credit, further supporting the growth and investments in this sector. The Data Protection Bill of 2023 is expected to further bolster growth and investments in the data center industry.
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