View of the Hyperscale data centre at the Yotta DC complex in Greater Noida on March 2, 2026. Photo: Tashi TobgyalWritten by Sakhi TrehanData centres emerged as a key destination for private equity (PE) investors channelling their funds into the real estate sector, with inflows for the sector garnering over one-third of the total investment pie in the April-June quarter.PE investment inflows in India’s real estate sector rose 25% year-on-year (YoY) to $2 billion in this quarter, of which data centres received a 38% share — surpassing the traditional frontrunner segment of office-led investments, as per a report released in July by the global real estate consulting firm Savills India.Overall, PE investments in India’s real estate sector recorded a 33% surge to $3.2 billion in the first half (H1) of the calendar year 2026, the report stated. The increased demand for digital infrastructure has resulted in a change in the preferences of investors, who are now expanding beyond office assets to invest in spaces that could yield better returns. The rise in investment in data centres was also seen last year, with investments in India’s data centres rising 27% year-on-year to $0.48 billion in 2025, according to real estate services and investment firm CBRE’s Real Estate Investment Market Outlook released in March 2026.With a sharp increase seen in data centre capacity additions in India, investors are eyeing the emerging space for investments in this sector. According to the Savills report, 69% of foreign-based investments were directed solely into data centres and the hospitality segment during H1 2026.A data centre — a physical facility that houses IT infrastructure and stores data in servers — is seeing growing demand, with another fresh wave owing to artificial intelligence and use across multiple sectors such as streaming, cloud computing, digital payments, and e-commerce. New data centre capacity additions in India rose 59.3% YoY to 258 MW IT (stands for megawatt IT, which refers to the maximum amount of electricity available to run server equipment inside a data centre) in H1 2026 from 162 MW IT in H1 2025, taking the country’s total operational stock to 1.8 GW IT, as per Savills India data.This growth momentum is expected to continue through the rest of 2026. The CBRE report said that around 500 MW of new data centre capacity is expected to be added in India during 2026, whereas the country’s total operational data centre stock (total operational capacity) is projected to grow by around 30% YoY.Story continues below this adAlso read | Inside India’s giant AI ‘refineries’: The high-security monoliths powering your ChatGPT promptsWhile cost advantages offer a suitable opportunity for India in the data centre space, experts pointed out that land and power availability will be key challenges. “We anticipate emerging demand from neo-cloud service providers, many of whom are actively evaluating India as a strategic destination owing to its compelling cost advantages, location-agnostic nature, and expanding infrastructure ecosystem,” said Srihari Srinivasan, Director & Lead – Data Centre Services, Savills India.“Despite the steady market outlook, facilitation of power and suitable land parcels for data centre development remains a critical challenge across all key data centre markets in India, requiring hyperscalers and data centre operators to explore new clusters for future expansion, with the support of local governments,” he said.Hyperscalers refer to giant cloud computing companies such as Amazon Web Services, Microsoft Azure, and Google Cloud that own and operate massive data centres. Microsoft, Amazon, and Google have announced expansion of their footprint in India, with Microsoft planning to open its biggest data centre in the country in 2026.Alternative assetsStory continues below this adInvestors are also allocating capital across multiple sectors that have seen rapid growth in recent years. Sectors like hospitality and student housing attracted institutional investments and have garnered a share of 8% and 3% respectively in H1 2026. While domestic capital drove the majority (52%) of the PE inflows in H1, the remaining 48% was through foreign-based investors, with 69% of this foreign capital originating from the US and Canada, directed mainly into data centres and the hospitality segment that has seen an increase in tourism in recent years.NewsletterFollow our daily newsletter so you never miss anything important. On Wednesday, we answer readers' questions.SubscribeWhile capital was deployed across a broad spectrum of asset classes, including alternative segments, office remained the top choice during H1, capturing 68% of domestic investments, largely concentrated across India’s tier I cities with a 34% share of equity inflows.According to a report by global real estate and investment management company Colliers, mixed-use, retail, and alternative assets witnessed significant pull in 2025, cumulatively adding to about $1.5 billion and accounting for nearly 17% of total investments last year. “This diversification reflects a maturing investor base that is increasingly betting on India’s digital and alternative real estate,” said Sumeet Bhatia from Savills India.The writer is an intern with The Indian Express.