FreepikWhy Data Centre Funds are Paying 2.5x for Prime Land
With land at less than 10% of total project cost, investors are paying a premium to secure power and fibre for hyperscale tenants
November 3, 2025Real Estate
Written by Jorge Aguinaga
A recent transaction in Mumbai's competitive real estate market has baffled traditional developers, after a large global fund acquired a 3.81-acre plot for INR 475 crores, a price more than almost two and a half times the INR 220 crores a major data centre operator paid for an identically sized parcel just a few years ago.
While paying such a premium might seem irrational, the numbers definitely stack up. This land price paradox is the clearest sign of a profound shift, showing how data centres have evolved from a simple real estate play into a complex, high-stakes infrastructure business.
This fundamentally changes the investment thesis, as the data centre industry has firmly moved away as an yield asset to more like an operating business where success is driven not by property appreciation but by operational excellence and access to power, making it unequivocally a power business.
In this context, the high land price is not a speculative bet but a calculated entry fee to secure a prime location that has the massive power loads and dense fibre networks that hyperscale clients demand.
At India GRI 2025, industry leaders analysed the new data centre economics, revealing why land is now less than 10% of project cost and how hyperscaler demand is fuelling record 2.5x prices for prime locations. (GRI Institute)
This tenant-led demand de-risks the development significantly, as operators are not building speculatively but rather with the comfort of a locked-in, credible tenant, allowing the high land cost to simply be factored into a long-term lease.
The primary risk is one of concentration, because when an operator buys an asset at an inflated price, they are then at the mercy of that single large buyer.
If that hyperscale client’s plans change, the developer is left holding an incredibly expensive piece of land, and in that scenario, "you don't have any other big lender buyer of that asset".
For the funds and operators who understand this new equation, paying a premium for the perfect location is not a risk; it is simply the necessary cost of doing business at the cutting edge of the new economy.
These strategic insights were shared during the panel discussion on "Investing in Digital Infrastructure - Real Estate in The Changing World Order of The Data Centers Ecosystem".
The session was moderated by Rachit Mohan, APAC Head - Data Center Leasing & India Head - Data Center Transactions, JLL, and featured reflections from leading experts including Aseem Kohli, Director, Varde; Kamlesh Harchandani, CEO -Data Center Business, WAAREE ENERGIES LTD; Manmeet Singh Gulati, Managing Director & Head - South Asia; Real Estate Financing, Standard Chartered; Manoj Semwal, Director, Design Delivery- APAC, Equinix India; Manu Sharma, Chief Financial Officer, Pi DataCenters; and Narendra Sen, Founder & CEO, Rack Bank.
Access the full takeaways and C-level insights in the exclusive India GRI 2025 Spotlight.
Key Takeaways
- Data centres are now an operating infrastructure play where land accounts for less than 10% of the total project cost.
- High land prices are justified by pre-committed demand from hyperscale tenants who de-risk the investment for operators.
- This market model creates significant concentration risk as operators become reliant on a small number of hyperscale buyers.
A recent transaction in Mumbai's competitive real estate market has baffled traditional developers, after a large global fund acquired a 3.81-acre plot for INR 475 crores, a price more than almost two and a half times the INR 220 crores a major data centre operator paid for an identically sized parcel just a few years ago.
While paying such a premium might seem irrational, the numbers definitely stack up. This land price paradox is the clearest sign of a profound shift, showing how data centres have evolved from a simple real estate play into a complex, high-stakes infrastructure business.
Why data centre land is so expensive
The real estate component is now a surprisingly small part of the overall cost, with land now accounting for less than 10% of the total project investment. The other 90-plus% is consumed by the massive mechanical, electrical, and power (MEP) infrastructure, cooling systems, and technology.This fundamentally changes the investment thesis, as the data centre industry has firmly moved away as an yield asset to more like an operating business where success is driven not by property appreciation but by operational excellence and access to power, making it unequivocally a power business.
In this context, the high land price is not a speculative bet but a calculated entry fee to secure a prime location that has the massive power loads and dense fibre networks that hyperscale clients demand.
At India GRI 2025, industry leaders analysed the new data centre economics, revealing why land is now less than 10% of project cost and how hyperscaler demand is fuelling record 2.5x prices for prime locations. (GRI Institute)Hyperscaler demand de-risks investment
This confidence to pay escalating land prices comes directly from the end-users: the hyperscale cloud providers. Hyperscalers are reportedly telling operators, "you are realistic, go and buy it, I'll pay you".This tenant-led demand de-risks the development significantly, as operators are not building speculatively but rather with the comfort of a locked-in, credible tenant, allowing the high land cost to simply be factored into a long-term lease.
Understanding the investment risk
However, this hyperscaler-driven market is not without its perils, as the practice of hyperscalers driving up land prices has been described as a "malpractice".The primary risk is one of concentration, because when an operator buys an asset at an inflated price, they are then at the mercy of that single large buyer.
If that hyperscale client’s plans change, the developer is left holding an incredibly expensive piece of land, and in that scenario, "you don't have any other big lender buyer of that asset".
A new asset class for Indian real estate
Ultimately, this eye-watering land deal is a sign that digital infrastructure has decoupled from traditional real estate metrics, as the value is no longer in the land itself but in its strategic ability to host a high-performance operating business.For the funds and operators who understand this new equation, paying a premium for the perfect location is not a risk; it is simply the necessary cost of doing business at the cutting edge of the new economy.
These strategic insights were shared during the panel discussion on "Investing in Digital Infrastructure - Real Estate in The Changing World Order of The Data Centers Ecosystem".
The session was moderated by Rachit Mohan, APAC Head - Data Center Leasing & India Head - Data Center Transactions, JLL, and featured reflections from leading experts including Aseem Kohli, Director, Varde; Kamlesh Harchandani, CEO -Data Center Business, WAAREE ENERGIES LTD; Manmeet Singh Gulati, Managing Director & Head - South Asia; Real Estate Financing, Standard Chartered; Manoj Semwal, Director, Design Delivery- APAC, Equinix India; Manu Sharma, Chief Financial Officer, Pi DataCenters; and Narendra Sen, Founder & CEO, Rack Bank.
Access the full takeaways and C-level insights in the exclusive India GRI 2025 Spotlight.