Data centers are expanding into tier-2 and tier-3 cities

The data centre industry has witnessed growth from 350 MW capacity in 2019 to 854 MW in 2023, reflecting a compound annual growth rate of 25%. Notably, Government initiatives and increasing internet penetration are fueling demand in the eastern corridor. Tier-2 and -3 cities are gaining appeal due to their strategic locations and enhanced infrastructure, as companies aim to serve the underserved majority. 

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India’s data centre industry is expanding beyond traditional hubs like Mumbai and Chennai to emerging cities such as Kochi, Jaipur, Ahmedabad, Lucknow, Patna, and Visakhapatnam. This shift is driven by the need to cater to a growing, geographically dispersed user base and capitalize on opportunities in the eastern corridor, which offers strategic advantages and cost benefits. 

Leading firms like Airtel’s Nxtra, NTT, and CtrlS are particularly focused on this region, viewing it as a gateway to Southeast Asia.

These emerging locations are attractive due to their improved infrastructure, including better power supply and upgraded fibre and cable connectivity. They also offer lower land and construction costs compared to major cities, resulting in significant savings. 

Anshuman Magazine, Chairman and Chief Executive Officer-India, Southeast Asia, Middle East & Africa at CBRE said, “Diversifying data centre locations not only distributes economic benefits more evenly but also enhances overall network resilience and reduces the risks associated with clustering in a few spots.” 

As per JLL data, the data centre industry’s capacity has surged from 350 MW in 2019 to 854 MW in 2023, growing at a 25% annual rate. 

While Mumbai, Chennai, Delhi-NCR, and Hyderabad remain key players due to their reliable infrastructure and large markets, the launch of 5G technology and the growing need for low-latency computing are expected to drive more growth in tier-2 and -3 cities.

Government initiatives and increasing internet penetration are fueling demand in the eastern corridor. To further support this growth, experts suggest that state governments could provide GST waivers, cover some substation costs, and reduce power costs for data centres. Efforts by West Bengal and Assam to develop cable landing stations are expected to boost the region’s data centre market, aligning with the broader trend of digital transformation and economic growth.