Data Center Colocation Market Report Scope & Overview:

The Data Center Colocation Market was valued at USD 67.3 Billion in 2023 and is expected to reach USD 205.0 Billion by 2032, growing at a CAGR of 13.19% from 2024-2032.

The data center colocation market is expanding due to increased adoption across regions, driven by enterprises seeking cost-effective and scalable IT infrastructure. Hyperscale and enterprise colocation facilities are rapidly growing across key countries, fueled by rising cloud adoption and digital transformation. The demand for edge colocation services is surging across industries to support low-latency applications, IoT, and 5G deployments. Additionally, advancements in power and cooling infrastructure are enhancing energy efficiency and sustainability in colocation data centers. This report consists of AI-driven colocation management, green colocation initiatives, and the impact of regulatory policies on colocation services, providing a more comprehensive market analysis.

The U.S. data center colocation market was valued at USD 19.4 Billion in 2023 and is expected to reach USD 57.9 Billion by 2032, growing at a CAGR of 12.92% from 2024-2032. driven by the increasing demand for AI data centers, which are projected to triple power consumption within three years, potentially consuming 12% of the country's power supply.  This surge is attracting major tech companies to expand their data center footprints across the country.

Data Center Colocation Market Dynamics

Driver

• Growing demand for scalable and cost-effective IT infrastructure is driving enterprises toward colocation services to reduce CAPEX and enhance flexibility.

The increasing need for scalable, cost-effective IT solutions is driving enterprises toward data center colocation services. Businesses are opting for colocation facilities to reduce capital expenditure (CAPEX) associated with building and maintaining private data centers. With the rise of cloud computing, AI-driven applications, and IoT, colocation providers are offering high-performance, low-latency connectivity. Additionally, enterprises benefit from improved security, redundancy, and disaster recovery capabilities. The demand is further fueled by hyperscalers and enterprises expanding their IT workloads while leveraging colocation services for flexible, on-demand infrastructure. This shift is enabling businesses to focus on core competencies while data center providers manage critical infrastructure needs.

Restraint

• High initial setup and operational costs, along with complex long-term contracts, hinder adoption, especially for SMEs.

Despite the benefits, data center colocation requires significant initial investments in infrastructure, power, and cooling solutions. Businesses often face high operational expenses, including recurring costs for bandwidth, rack space, and managed services. Additionally, contracts with colocation providers can be complex and long-term, making it challenging for organizations to switch providers or scale operations efficiently. Rising energy prices and sustainability compliance further add to the operational burden. These financial constraints may deter small and medium-sized enterprises from adopting colocation services, as they may lack the budget and resources to justify ongoing expenditures associated with premium colocation facilities.

Opportunity

• The rising adoption of edge computing and AI workloads is creating new growth opportunities for colocation providers in regional and hyperscale markets.

The increasing demand for edge computing and AI-driven workloads is opening new growth opportunities in the data center colocation market. As businesses seek to deploy low-latency applications, including autonomous vehicles, IoT devices, and 5G networks, colocation providers are expanding their presence in regional and edge locations. AI workloads require high-density computing environments, leading colocation providers to invest in advanced cooling and power management solutions. The integration of AI-powered monitoring and automation in colocation facilities enhances operational efficiency and uptime. This trend is attracting hyperscalers, telecom companies, and enterprises looking for optimized infrastructure to support real-time data processing and next-gen digital services.

Challenge

• Increasing power consumption and sustainability concerns are pressuring colocation providers to invest in energy-efficient and green data center solutions.

Data center colocation providers are sent to the green department due to increasing problems connected to power usage and sustainability. Colocation facilities need more power to process and store data as AI workloads and cloud and high-performance computing grow. It has also brought concerns about environmental impact, carbon emissions, and regulatory compliance. Colocation providers are forced to embrace renewable energy and innovative cooling technologies, with governments globally tightening the regulations surrounding energy efficiency and green data center initiatives. However moving to sustainable colocation solutions necessitates significant investment and technical overhauls, making it a tricky solution for providers to manage cost-effectiveness, energy efficiency, and operational performance.

Data Center Colocation Market Segmentation Analysis

By Colocation Type

In 2024, the retail colocation segment dominated the market and accounted for 68% of revenue share. Retail colocation enables smaller businesses to rent mini spaces in a data center, which is best for breaching low data volumes with the least possible infrastructure. This low-cost model has made it very easy for, small and medium enterprises to adopt it as they can build their data centers and use a secure, scalable IT infrastructure without much expense.

The wholesale colocation segment is expected to record the fastest CAGR during the forecast period. leading cloud service providers have adopted collocation to serve big arms needing extreme data storage and high-performance infrastructure. Enterprise companies serve a wide array of customers and process huge amounts of data, and as a result, they need ample space, capacity, and security to protect their servers.

By Tier Level

The tier 3 segment dominated the market and held the highest revenue share in 2023, owing to the demand from enterprises, cloud service providers, financial institutions, and technology companies that need high reliability,  scalability, and redundancy. Tier 3 facilities, offering an impressive uptime guarantee of 99.982% (~1.6 hours of downtime a year), and N+1 redundancy for both power and cooling, are ideal for mission-critical workloads, hybrid cloud deployments, and digital transformation strategies.

The tier 4 segment is anticipated to register the fastest CAGR during the projected period. The emergence of hyper scale cloud providers, AI, and HPC is driving the demand for Tier 4 colocation facilities. Tier 4 colocation centers were built for AI-driven workloads, deep learning models, and data-heavy applications that require high-density computing power, precision cooling, and constant operations.

By Enterprise Size

The large enterprises segment dominated the market and accounted for 59% of revenue share. High availability encompasses ensuring business continuity within organizations, especially with large enterprises hosting their mission-critical applications and functionalities like financial transactions, Cloud-based SaaS apps as well as government operations. To reduce downtime risks, colocation data centers have redundant power and backup generators,  disaster recovery solutions, and infrastructure that is geographically distributed, ensuring 99.999% uptime.

The SME sub-segment is anticipated to register the fastest CAGR during the forecast period. Swiftly expanding software-as-a-service startups, fintech firms, and digital-first SMEs are both fuelling demand for secure, high-performance colocation solutions. These businesses depend on scalable IT environments to facilitate continuous software development, cloud-native applications, and real-time financial transactions.

By End-Use

The IT & telecom segment dominated the market and accounted for significant revenue share in 2023. One of the moves that's accelerating the colocation of data centers is the worldwide rollout of the 5G network, as telecom players aim to bring ultra-quick speeds to those in need of low-latency infrastructure.

The healthcare segment is anticipated to grow at a substantial CAGR during the forecast period. Mainly because of electronic health records, telemedicine, AI-driven diagnostics,  and medical IoT, the healthcare sector is rapidly moving into digital transformation. The increasing volume of patient data, real-time monitoring applications, and regulatory compliance requirements are driving the demand for high-performance, secure,  and scalable IT infrastructure.

Regional Analysis

North America dominated the data center colocation market and accounted for 37% of revenue share,  owing to the growing cloud computing market, artificial intelligence workloads, and increasing enterprise digitalization. Strong demand for high-performance, interconnected colocation facilities in the region is being driven by the presence of hyperscalers in the region such as AWS, Microsoft Azure and Google Cloud. The growth of 5G as well as IoT and edge computing deployments are further driving colocation adoption, especially in major hubs such as Northern Virginia, Dallas, and Silicon Valley.

Asia Pacific's data center colocation market is expected to register the fastest CAGR during 2024-2032. Rapid Growth of the Digital Economy, AI-driven enterprises, and the Adoption of Cloud Computing Investment are spinning into hyperscale colocation facilities in high-tech centers such as Singapore, Tokyo, and Sydney to meet systemic increases in internet penetration and e-commerce demand. The expansion of 5G networks and smart city projects are driving growth in colocation as well.

Key Players

The major key players along with their products are

• Equinix – International Business Exchange (IBX) Data Centers

• Digital Realty – PlatformDIGITAL

• NTT Ltd. – Global Data Centers

• CyrusOne – Hyperscale Data Centers

• CoreSite – Open Cloud Exchange

• Iron Mountain – Data Center Colocation Services

• Cyxtera Technologies – Digital Exchange Platform

• Colt Data Centre Services – Hybrid Cloud Data Centers

• China Telecom – IDC Colocation Services

• China Unicom – Smart IDC Solutions

• Telehouse – Telehouse Data Centers

• 365 Data Centers – Colocation & Cloud Solutions

• Flexential – FlexAnywhere Platform

• Scala Data Centers – Hyperscale Edge Data Centers

• AT&T Business – Colocation Hosting Services

Recent Developments

• February 2024: Microsoft announced plans to invest $1.4 billion in constructing two new data centers west of San Antonio, Texas, each approximately 489,400 square feet, with construction set to begin in June 2025. 

• August 2024: Meta (formerly Facebook) revealed an $800 million investment to build a 715,000 square-foot hyperscale data center in Cheyenne, Wyoming, marking its 21st U.S. data center. 

• August 2024: EdgeCore secured 120 acres in Virginia's Culpeper Technology Zone to develop a new 1.4 million square-foot data center campus, supporting 216 MW of critical IT load, with the first phase expected by early 2028.