Data Center Colocation Market

Market Overview

The global data center colocation market size was valued at USD 63.65 billion in 2021. It is expected to grow to USD 293.11 billion by 2030, growing at a CAGR of 16.47% during the forecast period (2023–2031).

The concept of colocation, which entails the construction of and participation in the leasing of space within data centers, has seen an explosive expansion in recent years due to the structure of enormous data center campuses by Google Cloud Platform, Microsoft Azure, and Facebook in far-flung locations. A company can rent space within this facility to store its computing hardware and other equipment. It includes providing data center space and infrastructure, such as power, network bandwidth, physical security, and cooling component, on lease to end-users. This practice is also known as colocation.

A bullish trend can be seen in the data center colocation market due to the rapid adoption of data centers across all industry verticals. Due to the quick adoption of data centers across all industry verticals, a bullish trend can be seen in the data center colocation market. The process of renting a large amount of physical space, internet bandwidth, and network by a service provider within an existing data center to deploy the service provider's own data center to store massive amounts of data and manage server operations for large businesses is known as " data center colocation." Data center colocation is made possible because of this as it enables sharing of the pre-existing infrastructure of data center resources.

Market Dynamics

Market Driving Factors

Ever-Increasing Demand for Higher Bandwidth Connections

The need for high-capacity networks is experiencing a significant uptick in demand due to the proliferation of edge computing applications. Additionally, the need to gain immediate real-time insights and the challenges posed by network latency led to the development of multi-locational hybrid data architectures. These architectural designs were created to address these problems, and now it is crucial to transmit data between the various data centers or private exchange points. In addition, businesses are increasingly moving their operations to the cloud, which has resulted in the demand for increased bandwidth to facilitate faster data processing speeds and uninterrupted data transfer. The development of new technologies such as 5G and immersive technologies such as augmented reality, virtual reality, and artificial intelligence has also contributed to allocating higher bandwidths for data sharing between businesses.

In addition, the continued adoption of numerous innovative technologies, including cloud computing, the internet of things (IoT), autonomous vehicles, and advanced robotics, is increasing the demand for data center colocation. The ongoing growth of these technologies has also prompted the widespread adoption of intelligent devices, creating a need for lower latency. As a result, colocation allows cloud service providers to relocate their data center facilities closer to their customers, offering high bandwidth and low latency in data transfer. In addition, the rising demand for decreased latency in data transfers and improved connectivity amid the increasing adoption of smart devices is likely to boost the demand for colocation data centers. This is expected to be the case.

Growing Data Traffic as well as the Requirement for Expanded Network Capacity

This surge has resulted in network capacity expansion throughout the 4G era, and it will eventually get the world ready for the mass-market adoption of 5G networks. It is anticipated that 5G networks will have captured approximately 54 percent of the mobile data market. The expansion can also be attributed to the development of the number of cellular radio sites and the deployment of an additional wireless spectrum. Both of these factors contributed to the growth. It is anticipated that the demand for mobile data usage will increase significantly to accommodate cloud gaming, OTT platforms, streaming services, and immersive application development as the industry moves toward the fifth generation of cellular network technology. As a direct consequence of this, network operators are under pressure to increase the capacity of their networks to deliver an improved customer experience.

Small cell installations are becoming increasingly popular for network coverage improvements among operators in every region. It is anticipated that, over time, mobile operators will rely on small cells to add data network capacity in areas with heavy traffic congestion. The small cell technology increases the number of radios available to each subscriber and provides users with an improved signal quality, which is essential for efficient data transfer. The problem of a short signal reach caused by higher frequency 5G technology is solved by the proximity of the radio sites. As a direct result of this, mobile network operators are increasingly turning to small cells as the primary solution for expanding the data capacity of the network. The industry is expected to grow over the next few years due to the increasing volume of data traffic and the corresponding need for increased network capacity.

Market Restraining Factors

Hampered by a Scarcity of Qualified Labor

Finding qualified IT personnel is one of the biggest problems colocation data center operators face. The aging workforce makes it difficult for colocation providers to keep up with the growing amount of work in the information technology industry. According to the findings of the 2019 Data Center Survey conducted by the Uptime Institute, a number of seasoned managers are likely to retire over the next few years. This would eventually lead to a lack of available workers in the facilities that house data centers. According to the survey results, one of the most significant challenges facing the data center market is a lack of available labor, cited by 28 percent of respondents.

Colocation data centers with a limited number of IT personnel face additional challenges due to the competition from hyper-scale data center operators to hire new talent for their data center facilities. One of the reasons there is a shortage is that there hasn't been enough succession planning for experienced staff members. It is anticipated that stringent immigration policies for employees will cause labor shortages in data centers in the not-too-distant future; as a result, the growth of the data center colocation market will be restricted over the forecast period. 

Key Market Opportunities

Growing Investments in Emerging Markets

The rising demand for hyper-scale data centers as a means of capacity expansion has been a driving force behind the phenomenal growth that the data center market has experienced over the past few years. Cloud service providers such as Amazon.com, Inc., Google, and Microsoft constructed enormous data center campuses and leased tons of floor capacity from colocation service providers in populated areas. However, these data center establishments took place in the largest and most mature markets, such as Singapore, North Virginia, and Amsterdam. As a result of these markets reaching their maturity, the growth rate of these markets has reached a plateau. Several emerging markets present new opportunities for colocation service providers as many businesses go online and shift to cloud infrastructure. Chennai, Zurich, Oslo, Warsaw, Jakarta, Salt Lake City, and several other cities are expected to be among the next wave of emerging markets to see a surge in data centers.

Many businesses that offer colocation services are investing in different nations all over the Asia-Pacific region due to the region's increasing data traffic. In addition, the expansion of the telecommunications network and the rise in the number of new businesses centered on information technology have led to an increase in the demand for more rapid data processing and storage capacities. The adoption of digital technology and expansion of business operations by several small and medium enterprises (SMEs) across these economies. Colocation gives them a fantastic opportunity to expand their operations and infrastructure at significantly lower costs than would otherwise be possible. As a result, rising data volumes and the proliferation of new businesses across emerging markets are anticipated to present new growth opportunities for the data center colocation market.

Regional Analysis

The global data center colocation market is studied across North America, Europe, Asia-Pacific, and LAMEA. North America is the highest revenue contributor, accounting for USD 19,860.0 million in 2021, and is estimated to reach USD 50,392.18 million by 2030, with a CAGR of 10.9%. Europe is the second-largest contributor and is estimated to reach around USD 44,084.17 million at a CAGR of 13.4% by 2030. Asia-Pacific is estimated to grow at a CAGR of 19.2% during the forecast period.

Segmental Analysis

The global data center colocation market has been divided into distinct submarkets based on the Colocation type, Enterprise size, and End-user.

On the Basis of Colocation Type

Based on the colocation type, the global folding data center colocation market has been categorized into Retail colocation and Wholesale colocation.

The retail colocation segment was the highest contributor to the market and is estimated to reach USD 101,646.71 million by 2030, at a CAGR of 12.4% during the forecast period. The wholesale colocation segments are expected to witness significant growth at a CAGR of 16.9% during the forecast period.

On the Basis of Enterprise Size Type

By Enterprise size type, the global data center colocation market has been categorized into SMEs, s and Large Enterprises. Out of which, the Large Enterprises segment was the highest contributor to the market and is estimated to reach USD 83307.21 million by 2030, at a CAGR of 11.9% during the forecast period. The SME, s segment is estimated to grow at a CAGR of 16.1% by 2030.

On the Basis of End Use Type

By End Use type, the global data center colocation market has been categorized into Retail, BFSI, IT & Telecom, Healthcare, and Media & Entertainment. The IT & Telecom segment was the highest contributor to the market and is estimated to reach USD 83,307.21 million by 2030, at a CAGR of 15.9% during the forecast period. The BFSI segment's second-largest market share is estimated to grow at a CAGR of 11.1% by 2030.

Recent Developments

• May 2022, CoreSite Implements Modern, Energy-Efficient Cooling System in Its Boston Data Centre.