Data Center Colocation Market Size, Share & Trends Analysis Report By Colocation Type (Retail Colocation, Wholesale Colocation), By Enterprise Size (Small-Medium Enterprises, Large Enterprises), By Tier Level (Tier 1, Tier 2, Tier 3, Tier 4), By End-User (BFSI, Healthcare, Energy And Utility, It and Telecom, Retail and E-Commerce, Manufacturing, Government and Public Sector, Media and Entertainment) and By Region(North America, Europe, APAC, Middle East and Africa, LATAM) Forecasts, 2024-2032

Market Overview

The global data center colocation market size was valued at USD 83.32 billion in 2023. It is expected to grow to USD 310.26 billion by 2032, growing at a CAGR of 15.9% during the forecast period (2024–2032).

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 is segmented based on colocation type, enterprise size, tier level, and end-user.

The data center colocation market is further segmented by Colocation type into Retail Colocation and wholesale Colocation.

The retail colocation category has a higher market share and leads the data center colocation market. The retail colocation segment is the largest market segment, owing to the increased need for dependable and scalable data center solutions from businesses of all sizes. Retail colocation allows customers to tailor their IT infrastructure to their needs by providing dedicated space, power, and connection within multi-tenant data centers. This flexibility and cost make retail colocation appealing for enterprises, resulting in widespread adoption and market dominance.

The wholesale colocation category is predicted to increase at a substantial CAGR during the forecast period and remains smaller in overall market size than the retail colocation segment. The retail colocation segment's increased market share and dominance can be due to the varied spectrum of organizations, from SMEs to large corporations, who demand these adaptable and scalable data center solutions.

The market is further segmented by Enterprise size into Small-Medium Enterprises and large Enterprises.

The Large Enterprises segment dominates the Data Center Colocation. Large enterprises typically have higher IT infrastructure requirements, generating more data and needing more computing power to support their operations. They often have complex IT environments with multiple applications, databases, and servers that require reliable and scalable data center solutions. Colocation providers can offer large enterprises the necessary space, power, cooling, and connectivity to accommodate their extensive IT needs.

Additionally, large enterprises have the financial resources to invest in colocation services and can benefit from economies of scale. They can negotiate better pricing and terms with colocation providers due to their higher demand and bargaining power. Large enterprises also prioritize data security, compliance, and disaster recovery, which colocation providers can effectively address through their physical security measures, redundant infrastructure, and geographic diversity. As a result, the Large Enterprises segment is expected to continue dominating the Data Center Colocation market in the coming years, driven by their growing data center requirements and the advantages offered by colocation services.

Based on Tier level, the market is further segmented into Tier 1, Tier 2, Tier 3, and Tier 4.

The Tier 3 segment dominates the Data Center Colocation industry. This is due to rising demand for higher-tier colocation services that offer more availability and redundancy, lower costs than Tier 4, and various power and cooling distribution channels. Tier 3 data centers provide the stability, fault tolerance, and redundancy that mission-critical applications like financial services, healthcare, and large-scale e-commerce demand.

Furthermore, the advancement of edge computing technologies and the increased demand for Tier 3 colocation services from SMEs with changing IT requirements drive market expansion in this category. While the Tier 4 category is predicted to post the highest CAGR throughout the forecast period due to the increased need for optimal uptime and dependability, the Tier 3 segment remains the dominating player in the Data Center Colocation market.

The market is further segmented based on end-user into BFSI, Healthcare, Energy and Utility, It and Telecom, Retail and E-Commerce, Manufacturing, Government and Public Sector, Media and Entertainment.

The IT and Telecom segment dominates the Data Center Colocation market, with the largest market share compared to other end-user groups. This segment accounted for almost 28% of the global data center colocation market share and is expected to maintain its dominance during the forecast period. This expansion can be ascribed to increased internet users globally and the ongoing release of new apps, which has raised demand for data center services. Furthermore, the increasing demand for smartphones with new embedded features is pushing the need for dependable and scalable data center infrastructure, which colocation providers can efficiently provide.

Furthermore, the IT and telecom industries generate massive amounts of data, necessitating adequate storage and processing capabilities. Colocation services provide the infrastructure, connection, and support required for effective data management. As a result, the IT and Telecom segment will continue to dominate the Data Center Colocation market in the future, owing to increased demand for data center services and the benefits provided by colocation providers.

Impact of covid-19

The impact of COVID-19 has a devastating effect on all industry verticals globally. The market of integrated risk management software has witnessed a slight surge amid pandemic COVID-19. The growth is attributed to increasing cyber-attack activities during pandemic COVID-19. According to a McAfee report, cyber attacks surge to approximately 605% amid pandemic COVID-19. This enables increasing demand for integrated risk management to protect, detect, and improve sensitive data risk.

Moreover, integrated risk management software helps enterprises in critical decision making and has an in-depth analysis of crisis management. Furthermore, key players have launched integrated risk management to offer a risk management platform to several enterprises to deal with crisis management amid pandemic COVID-19. For instance, in October 2020, MetricStream has launched the M7 integrated risk platform that helps enterprises adopt intelligent, agile, and simple approaches to deal with changing workforce, cybersecurity, and risk during pandemic COVID-19.

Recent Developments

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