Synopsis: This article compares warehouses with data centres returns, risk and growth potential and the asset class that can provide a better long-term real estate return.
Investing in real estate isn’t just about residential and commercial homes anymore. India’s digital infrastructure and the current trend of modern supply chains in the Indian economy has caused investors to be interested in other asset classes, such as data centres and warehouses. From cloud computing to artificial intelligence and increasing data demands, data centres are becoming a high-growth area for warehouses, which have always been strong in e-commerce and logistics.
Understanding the two asset classes
- Warehouses: A warehouse is a large industrial building with a space of roughly 2000 square feet, the products are stored, sorted and loaded out in bulk. They are the backbone of modern supply chains and are used in a variety of industries such as e-commerce, manufacturing, retail, and third-party logistics (3PL). Warehouse space demand is mainly fueled by growth in consumption, shorter delivery timeframes and by the need for effective inventory management.
- Data Centres: Data centres are dedicated facilities with servers, storage devices, and networking gear needed for data processing and storage. They enable cloud computing, artificial intelligence, streaming services, fintech platforms and enterprise operations. Power, cooling systems, fibre connections, security needs etc. are all costly investments made in data centres, making it one of the most technologically advanced real estate asset classes.
Market Growth
Warehouses
The warehousing industry is one of the fastest-growing parts of industrial real estate in India. Overall, the top 8 cities had 36.9 million sq.ft. of leasing activity in 2025, a 16% increase from a year ago, with 3PL, manufacturing, and e-commerce companies being the largest contributors. The trend reversed in 2026 with Transactions in the warehouse segment up 15% YoY to 19.3 Million sq. ft. in Q1 2026 alone. The cities of Mumbai, Delhi-NCR, Bengaluru, Chennai and Pune are still definitely in the race for the occupation, due to their strong connectivity and consumption base. Modern grade A warehouses rent for ₹20 to ₹35 per sq. ft. per month depending on the specifications and location and can be viewed as a regular source of income generation asset class.
Data Centres
The data centre industry is also expanding at an even faster pace, given the increasing trend of data localisation laws, cloud computing, artificial intelligence, and the booming Indian digital economy. India’s operational capacity in data centres reach above 1 GW with capacity expected to be at around 1,123 MW by H1 2025. The capacity will rise by 77% to 1,825 MW by 2027, which will need almost 9.3 million sq. ft. of real estate space and investment of billions of dollars, JLL reports. The industry estimates that capacity will be increased to 8 GW by 2030, building upon the more than $30 billion investment. The sector’s allure is its long-term demand visibility and AI workloads are forecast to make a big contribution to the sector’s future demand.
Investment Understanding
Warehouses
- The cost of development for grade-A warehouses can vary from ₹1500/sq. ft. to ₹3000/sq. ft. depending on the specifications, location and level of automation.
- The average rent of Grade-A warehouses in the major markets across India in 2024 was approximately ₹24.8 per sq. ft. per month, and Grade-B warehouses averaged approximately ₹20.5 per sq. ft. per month.
- The rentals across the top logistics markets in Q3 2025 ranged from ₹21 – ₹28 per sq. ft. per month with NCR standing at ₹28 per sq. ft. per month.
- Typically, warehouse leases range from five to nine years and rent increases are 12–15% every three years.
- Rental yields will usually be 7% to 10% per year, depending on tenant quality and location.
- Warehousing stock is currently at 533 million sq. ft in India with annual absorption at a record 60 million sq. ft. highlighting strong occupier demand.
Data Centres
- The capital cost of building data centres is significantly higher, in the range of ₹40–45 crore per MW about a few years ago and is now in the range of ₹60–70 crore per MW.
- Colocation costs in India are estimated to be approximately ₹46.5 crore per MW (USD 5.4 million per MW) on average.
- Meanwhile, the average cost of construction, driven by the impact of AI fueled demand and infrastructure requirements, rose from USD 7.7 million per MW in 2020 to USD 10.7 million per MW in 2025 globally.
- Usually, the terms of lease agreements are a lot longer, sometimes 10 to 15 years, and hyperscalers and cloud providers invest heavily in the equipment that they install.
- In 2024, India’s data centre capacity increased to 1 GW and is expected to grow by 77% to 1.8 GW by 2027.
- By 2027, the sector will be needing an estimated USD 6.3 billion (₹54,000+ crore) worth of capital investments and real estate space.
- The occupancy rate is also excellent, rising from 82% in 2019 to 93% in 2023, signifying high demand and low vacancy risk.
Returns comparison: Which generates Higher Income?
The rent received from the warehouse in 10 years would be approximately ₹80 crore, and the rent received from the data centre would be approximately ₹110 crore, a difference of approximately ₹30 crore, which is the difference between the two. This is where it can grow even wider because of the longer length of leases, the reduction in tenant turnover, and growing demand from AI and cloud computing businesses.
Example: ₹10 Crore Investment
Investor Interest and Capital Flows
- Between 2017 and 2024, India saw institutional investments of more than $8 billion in the warehousing space, fueled by high demand from logistics and e-commerce firms as well as manufacturing companies.
- Warehousing currently makes up about 15 – 20% of the total commercial real estate investment in India, with the key cities such as Mumbai, Delhi-NCR, Pune, Chennai and Bengaluru.
- Data centres are witnessing even stronger capital inflows. Data centres are projected to be a major source of investment for India of more than $20-25 billion by 2030, with hyperscalers, cloud providers, infrastructure funds, and global investors driving the growth.
- JLL expects the sector to need approximately $6.3 billion (₹54,000+ crore) in investments in the years to come to meet the planned capacity expansion requirements until 2027.
- The major developers and landowners are increasingly dedicating land to data centre projects, especially in cities like Mumbai, Chennai, Hyderabad and Delhi-NCR, which boast connectivity and power infrastructure advantages.
- The institutional money inflows into both the sectors show their significance in the Indian economic growth narrative. Given the much higher investments being put in data centres, however, there is a higher level of optimism regarding future demand and returns.
Conclusion
Warehouses are still a reliable form of real estate and have a proven steady demand and returns. But, data centres are becoming an area of greater growth, fuelled by AI, cloud systems and growing digital consumption. They do need more investment, but their increased yields and longer leases may prove themselves to be the better player in the next 10 years.
Written by Boyapati Sai Jasmitha
