India has experienced a revolutionary digital transformation, fundamentally reshaping its economic and social landscape. From a sharp rise in online transactions post-demonetization, fueled by the introduction of UPI, to the nationwide rollout of 5G and the affordable access to smartphones - India has witnessed a surge in internet penetration like never before.

The launch of Reliance Jio disrupted the data pricing model, making internet access more affordable and inclusive, while the implementation of GST streamlined e-commerce and business operations, further accelerating the digital economy.

As a result, the demand for data storage, processing, and faster content delivery has surged. This digital wave has led to a booming data center ecosystem in the country, with colocation data centers emerging as a key solution for enterprises seeking scalable, secure, and compliant infrastructure. 

The enactment of the Digital Personal Data Protection (DPDP) Act of 2023, which mandates the localization of personal data, has further intensified the need for data centers within Indian borders.

Additionally, the rapid growth of Global Capability Centers (GCCs) - especially in tech hubs like Hyderabad - along with the proliferation of OTT platforms striving for low-latency content delivery, is prompting a surge in localized infrastructure development.

As India's data center industry continues its rapid expansion, Hyderabad has emerged as a major hotspot for colocation developments. With governments promoting data centers, and favorable economic conditions, the city is attracting significant investor attention. 

The recent data center investments in Hyderabad stand as a testament to the growing interest in the data centers. Some of the major investments are: 

• In January 2025, Amazon Web Services announced an investment of USD 7 billion (INR 60,000 crores) to expand data centers in Hyderabad.

• ST Telemedia Global Data Centers (India) signed a MoU with the Telangana government on January 18 2025, for investment up to USD 410 million (INR 3500 crores) to establish an AI ready data center in Hyderabad.

• The government of Telangana in January 2025, signed a MoU with CtrlS data centers to establish a cutting-edge AI Datacenter Cluster in the state with an investment of USD 1.2 billion (INR 10,000 crores). 

With data consumption soaring and businesses seeking agility in scaling their IT infrastructure, colocation data centers have become an increasingly attractive option. Unlike traditional on-premise large data centers that require hefty upfront investments and ongoing maintenance, colocation facilities offer a cost-effective and scalable alternative, allowing companies to lease space, power, and cooling while maintaining control over their own hardware. 

As enterprises prioritize faster deployment, regulatory compliance, and operational efficiency, the demand for colocation solutions in India, particularly in thriving tech hubs like Hyderabad, is gaining significant momentum.

This blog outlines the major cost components, and financial considerations for a large tier III colocation data center with N+1 redundancy, to provide a comprehensive understanding of the capital expenditure required to build a colocation data center in Hyderabad. 

The cost estimates mentioned in the blog are based on the compiled insights from seasoned data centers industry experts such as data center managers, data center component OEM officials, etc., and a comprehensive secondary research.

Why Understanding Data Center Costs Matter?

Data centers are capital intensive, and knowing the estimated cost of setting up a colocation data center becomes essential for financial feasibility check, budget planning, and investment justification. It helps businesses assess return on investment (ROI), and avoid unexpected expenses after project initiation. 

A clear cost estimate also helps in strategic decision making, and risk mitigation covering major factors like space, power, cooling, bandwidth, security, and compliance. Without accurate cost estimates, companies risk budget overruns, and inefficient resource allocation.

In Hyderabad, where the colocation data center market is dominated by some of the major players such as CtrlS, Web Werks, etc., accurately estimating and managing costs becomes essential to stay competitive, maximize returns, and achieve long-term success.

Key Cost Components in a Colocation Data Center

Capital Expenditure (CAPEX)

These are the initial investments made to set up the data center, it includes one-time costs that go into acquiring, constructing, and upgrading the assets of the data center. For better understanding, CapEx is broken down into the following key components of a data center project: 

Consulting and Engineering Services

Data center designing requires a multi-disciplinary team consisting of MEP consultants, architects, structural engineers, IT infrastructure designers, and commissioning agents. Their collective efforts ensure that the facility adheres to industry standards, while optimizing for performance, scalability, and reliability. 

The typical consulting and engineering cost for a large colocation data center based on our study is around USD 163,307 (INR 1.4 crores) per MW, covering all stages from feasibility studies to design documentation.

Land and Civil Construction

The land cost varies depending on location, land size, zoning regulations, and the design complexity of the facility. Considering Hyderabad in this case, which is a tier 1 city, the land cost is high. Currently, in the outskirts of Hyderabad, where most new data centers are expected to be developed, land prices typically range from INR 1,500 to 2,000 per sq ft (around USD 18-23 per sq ft).

Furthermore, the civil construction cost or the shell structure (a basic building’s basic unfinished structure, including foundation, roof, and exterior walls, but without any interior finishes or systems) of the data center can cost around USD 175/sq ft (INR 15000/sq ft) which is on the higher end relative to a conventional shell structure of a commercial building. 

Compared to a conventional shell structure in commercial real estate, a data center shell structure which includes the steel and precast concrete structures require much higher load-bearing capacity to support heavy IT equipment, server racks, batteries, UPS systems, and cooling units. This results in a higher cost of construction per square feet.

Power Infrastructure

The cost associated with the power infrastructure forms a significant portion of the overall capital expenditure in building a data center. It includes transformers, high voltage switchgear, cabling, power distribution, automatic transfer switches (ATS), diesel generators, UPS systems, battery banks, etc. 

Based on our study and industry consultations, the cost of setting up power infrastructure is around USD 1.5 million (INR 13 crores) per MW. This cost ensures a redundant, and reliable power delivery to critical IT equipment, meeting both uptime requirements and safety standards as per the industry norms.

Cooling Infrastructure

Efficient cooling is critical to maintain optimal temperatures ensuring equipment performance and longevity. It includes computer room air conditioning (CRAC) units, chillers, etc. According to our study, the cost of establishing an efficient and reliable cooling infrastructure is around INR 6 crores per MW of cooling load.

White Space: It refers to the area in a data center where IT equipment (racks, servers, storage, networking) are housed. It is the zone where computing activity takes place, as opposed to mechanical/electrical support areas. It typically includes raised flooring, racks, servers, storage, network gear, power distribution units, cable trays, and precision cooling layouts, etc.

Based on industry inputs and primary research, the cost of developing white space is estimated to be around USD 467 (INR 40,000) per square foot. This includes the cost of all the components of the white space (excluding servers).

Fire Suppression System

Fire suppression is a critical safety infrastructure in data centers, designed to detect and extinguish fires without damaging sensitive IT equipment. Typical systems include clean agent suppression systems (like FM200 or Novec 1230), smoke detection sensors, and integrated emergency alert mechanisms. 

For a large-scale colocation data center, the cost of deploying an effective fire suppression system is estimated to be around USD 140000 (INR 2.2 crores) per MW. This covers equipment, detection systems, suppression agents, and deployment within both white space and support areas.

DCIM (Data Center Infrastructure Management) Software

An advanced DCIM enables data center operators to optimize infrastructure performance through real-time data analytics, visualization, and automated alerts. These systems offer insights into power usage effectiveness (PUE), asset tracking, cooling efficiency, and capacity planning.

The estimated upfront cost for implementing a DCIM system is USD 73,783 (INR 63.3 lakhs) per MW, excluding installation charges, which typically account for an additional 40% of the base cost. A functional DCIM solution is essential for maintaining uptime and ensuring operational efficiency at scale.

Security and Access Control

Physical security is a top priority for colocation providers, considering the mission-critical nature of hosted IT infrastructure. Security systems include biometric access controls, surveillance via IP-based CCTV systems, and perimeter fencing. 

The cost for deploying comprehensive security and access control measures is estimated at INR 19 lakhs per MW, which includes hardware and software systems to ensure round-the-clock monitoring and controlled access to sensitive areas.

Based on our study and industry consultations, the total cost of building a large colocation data center with N+1 redundancy in Hyderabad is estimated to be around USD 4.1 million (INR 35 crores) per MW of IT load. This estimate includes core infrastructure components, from land and civil works to power, cooling, and IT systems (excluding servers).

It is important to note that this figure represents a mid-level CapEx estimate. A high-end estimate, based on more premium designs, higher-grade infrastructure, or challenging site conditions, reaches up to USD 5.3 million (around INR 45 crores) per MW as per our industry interactions and study.

The pie chart below illustrates the approximate percentage share of each major CAPEX category. While actual figures may vary depending on project specifics such as design choices, vendor negotiations, etc. This distribution reflects a commonly observed pattern in India’s colocation development landscape and serves as a useful guide for budget planning and resource allocation.

Operational Expenditure (OPEX)

The recurring costs associated with running a data center come under operational expenditure. It includes all expenses needed for daily operations and maintenance. The key OpEx components associated with a data center are:

Electricity Bills

Often the largest recurring cost for any data center which significantly impacts the overall operating budget. It includes power drawn by IT equipment, cooling systems, lighting, and other facility operations. Considering a tariff of INR 8 per kWh, as per Telangana state electricity board, the annual power bill of the data center can be estimated. 

Payroll Expenses

A data center employs a mix of IT staff, facilities managers, security personnel, and support teams. Salaries vary based on experience, location, and job roles. Typically, for a 100 MW colocation facility, staffing requirements are optimized where the operations are managed round the clock through three 8-hour shifts, but the payroll still accounts for a notable share of the OpEx.

Network Charges

This is a vital cost to ensure uptime and latency-sensitive services for clients. Network costs form a significant portion of a data center’s operational expenditure. These include expenses related to primary internet bandwidth, leased lines, and connectivity to internet exchanges.

In addition to the primary connections, redundant or backup network links are also critical to ensure high availability and minimize the risk of downtime. These backup links, often sourced from separate Internet Service Providers (ISPs) or diverse network paths, add to the overall network-related OpEx but are essential for meeting Service Level Agreements (SLAs) and ensuring business continuity.

Annual Maintenance Charges

Based on our study it is estimated at around 2% of the total CapEx, these charges cover preventive maintenance, periodic equipment servicing, software upgrades, and replacement of critical components.

Diesel Charges

Diesel is primarily used for backup generators during grid outages and for scheduled maintenance runs. While data centers aim to minimize reliance on diesel to reduce costs and emissions, it remains a critical component of operational reliability.

The total annual diesel cost depends on the number of generators used, fuel consumption rate of generators, hours of grid failure, and maintenance schedules.

Operational expenses play a crucial role in determining the long-term profitability and sustainability of a large colocation data center. While electricity bills remain the largest cost driver, other recurring expenses such as staffing, network services, maintenance, and diesel usage add to the financial complexity of running the facility. 

Understanding these cost components in detail helps operators streamline budgets, optimize efficiency, and implement strategic measures to enhance operational performance over time.

Smart Design and Strategic Planning

Designing a large data center with future scalability and retrofitting flexibility is a critical success factor. During the initial design phase itself, the infrastructure should be planned to accommodate advancements in cooling, power, and network technologies. This includes modular designs, scalable power distribution, adaptable cooling systems (such as liquid cooling readiness), and flexible networking configurations. 

By incorporating these elements early on, future retrofitting can be done seamlessly and cost-effectively, allowing the data center to remain competitive and capable of supporting evolving high-density workloads, AI-driven applications, and next-generation computing requirements. This forward-thinking approach keeps upgrade costs low and ensures competitiveness over time.

Additionally, identifying and securing a strong customer base is critical for the long-term success of a large-scale colocation data center. Establishing contracts with enterprise clients, and cloud service providers in advance ensures steady revenue streams and reduces financial risk for the investors. A well-defined client acquisition strategy, coupled with competitive service offerings and long-term agreements, will enhance occupancy rates and overall profitability.

Conclusion

Building and operating a large-scale colocation data center in India, particularly in fast-growing hubs like Hyderabad is highly capital and operations intensive. From land acquisition and civil construction to advanced power and cooling infrastructure, each CAPEX element demands careful planning and significant investment. At the same time, operational expenditures such as electricity bills, payroll, maintenance, and diesel usage add to the ongoing financial load and require constant optimization to ensure profitability.

However, with the right strategy rooted in forward-thinking planning, and proactive client acquisition, operators can future-proof their facilities while maximizing return on investment. As digital transformation accelerates across sectors and technologies like AI and 5G reshape compute needs, colocation data centers that balance cost-efficiency with high performance will be best positioned to thrive.

Understanding the real costs involved at each stage both upfront and recurring empowers stakeholders to make informed decisions, mitigate risks, and unlock long-term value in India’s evolving digital infrastructure landscape.

Acknowledgements

This blog would not have been possible without the valuable insights and time shared by several professionals from the data center ecosystem. 

We would like to thank Mr. Lalith Kachhawaha, former Director of Construction at Qualcomm, for his in-depth inputs on civil construction of data centers.

Shrinidhi Deshpande, data center power infrastructure professional at Schneider Electric, for sharing insights into power infrastructure.

Pradeep Reddy, data center operation and maintenance manager at Microsoft; Doki Sai Krishna, data center cost manager at Gleeds; Muthuraj Nadar, former IT operations manager at Adani Realty who helped us understand the regulatory and cost structure.