Data Centres vs Warehouses: Which Real Estate Investment Offers Higher Returns?

Synopsis

This article compares warehouses with data centres in terms of returns, risk, and growth potential, highlighting the asset class that can provide a better long-term real estate return.

Understanding the Two Asset Classes

Warehouses A warehouse is a large industrial building with a space of roughly 2,000 square feet. These facilities are used for storing, sorting, and loading products in bulk. Warehouses are the backbone of modern supply chains and are essential in industries such as e-commerce, manufacturing, retail, and third-party logistics (3PL). The demand for warehouse space is driven by factors like growth in consumption, shorter delivery timeframes, and the need for effective inventory management.

Data Centres Data centres are dedicated facilities equipped with servers, storage devices, and networking gear. They are crucial for data processing and storage, enabling technologies like cloud computing, artificial intelligence, streaming services, fintech platforms, and enterprise operations. These centres require significant investments in power, cooling systems, fibre connections, and security, making them one of the most technologically advanced real estate asset classes.

Market Growth

Warehouses The warehousing industry is one of the fastest-growing segments of industrial real estate in India. In 2025, the top 8 cities saw 36.9 million sq. ft. of leasing activity, a 16% increase from the previous year. The trend continued in 2026, with transactions in the warehouse segment up 15% YoY to 19.3 million sq. ft. in Q1 2026. Key cities like Mumbai, Delhi-NCR, Bengaluru, Chennai, and Pune remain strong contenders due to their connectivity and consumption base. Modern grade A warehouses rent for ₹20 to ₹35 per sq. ft. per month, depending on specifications and location, making them a regular source of income.

Data Centres The data centre industry is expanding rapidly, driven by data localisation laws, cloud computing, AI, and the growing Indian digital economy. India’s operational capacity in data centres is expected to reach 1,123 MW by H1 2025, with a projected rise to 1,825 MW by 2027. This growth will require approximately 9.3 million sq. ft. of real estate space and billions of dollars in investment. By 2030, the industry is estimated to reach 8 GW, building on over $30 billion in investments. The sector’s long-term demand visibility and the rise of AI workloads are significant contributors to its future growth.

Investment Understanding

Warehouses - The cost of developing grade-A warehouses can range from ₹1,500/sq. ft. to ₹3,000/sq. ft., depending on specifications, location, and automation. - The average rent for Grade-A warehouses in major markets was approximately ₹24.8 per sq. ft. per month in 2024, while Grade-B warehouses averaged ₹20.5 per sq. ft. per month. - Rentals across the top logistics markets in Q3 2025 ranged from ₹21 to ₹28 per sq. ft. per month, with NCR at ₹28 per sq. ft. per month. - Warehouse leases typically range from five to nine years, with rent increases of 12–15% every three years. - Rental yields are usually 7% to 10% per year, depending on tenant quality and location. - The current warehousing stock in India is 533 million sq. ft., with annual absorption at a record 60 million sq. ft., indicating strong occupier demand.

Data Centres - The capital cost of building data centres is significantly higher, ranging from ₹40–45 crore per MW a few years ago to ₹60–70 crore per MW now. - Colocation costs in India average approximately ₹46.5 crore per MW (USD 5.4 million per MW). - The average construction cost, driven by AI and infrastructure requirements, rose from USD 7.7 million per MW in 2020 to USD 10.7 million per MW in 2025 globally. - Lease agreements for data centres are typically longer, often 10 to 15 years, with hyperscalers and cloud providers investing heavily in the equipment they install. - India’s data centre capacity increased to 1 GW in 2024 and is expected to grow by 77% to 1.8 GW by 2027. - By 2027, the sector will require an estimated USD 6.3 billion (₹54,000+ crore) in capital investments and real estate space. - The occupancy rate has risen from 82% in 2019 to 93% in 2023, indicating high demand and low vacancy risk.

Returns Comparison: Which Generates Higher Income?

The rent received from a warehouse over 10 years would be approximately ₹80 crore, while the rent from a data centre would be approximately ₹110 crore, a difference of ₹30 crore. This gap can widen due to longer lease terms, reduced tenant turnover, and growing demand from AI and cloud computing businesses.

Investor Interest and Capital Flows

- Between 2017 and 2024, India saw institutional investments of more than $8 billion in the warehousing space, driven by high demand from logistics, e-commerce, and manufacturing firms. - Warehousing currently makes up about 15–20% of total commercial real estate investment in India, with key cities like Mumbai, Delhi-NCR, Pune, Chennai, and Bengaluru being major hubs. - Data centres are witnessing even stronger capital inflows, with projections of more than $20–25 billion in investments by 2030, driven by hyperscalers, cloud providers, infrastructure funds, and global investors. - JLL expects the sector to require approximately $6.3 billion (₹54,000+ crore) in investments to meet the planned capacity expansion until 2027. - Major developers and landowners are increasingly dedicating land to data centre projects, especially in cities like Mumbai, Chennai, Hyderabad, and Delhi-NCR, which offer connectivity and power infrastructure advantages. - The institutional money flowing into both sectors underscores their significance in India’s economic growth. However, the higher investments in data centres indicate greater optimism regarding future demand and returns.

Conclusion

While warehouses remain a reliable form of real estate with steady demand and returns, data centres are emerging as a high-growth area, fueled by AI, cloud systems, and growing digital consumption. Despite the higher initial investment, data centres offer increased yields and longer leases, making them a potentially more lucrative investment in the next decade.