DATA CENTER COLOCATION MARKET ANALYSIS

Data Center Colocation Market Size and Trends

The Global Data Center Colocation Market is estimated to be valued at US$ 82.46 Bn in 2024 and is expected to reach US$ 186.24 Bn by 2031, exhibiting a compound annual growth rate (CAGR) of 12.3% from 2024 to 2031.

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The Data Center Colocation market growth is driven by growing demand for third-party data center services among enterprises. Key players in the market are increasingly investing in development of large data center campuses to cater to the demand from hyperscale companies. Additionally, the COVID-19 pandemic led to a surge in demand for digital infrastructure and cloud computing. This has necessitated construction of new data centers and expansion of existing ones. Growing reliance on public cloud, big data analytics, and 5G technology is also driving more organizations to rely on colocation providers for the management and hosting of their critical applications and IT infrastructure. Overall, cheaper operational costs, robust connectivity options, and abilities to scale on demand offered by colocation continue to make a strong business case over traditional in-house data center models.

The growth of cloud computing and need for scalability

The rise of cloud computing has transformed how businesses of all sizes operate and consume IT services. Cloud providers rent out large numbers of servers located in their global data centers to support the delivery of various cloud-based solutions like IaaS, PaaS, and SaaS. However, building and managing their own data centers requires massive upfront capital investments and operational expenses. Data center colocation provides cloud companies an attractive alternative where they can lease space, power, and cooling infrastructure on demand from colocation providers. This helps cloud players scale their infrastructure quickly as their customer base and workloads grow at a rapid pace.

Colocation services give cloud firms the scalability and flexibility to avoid being locked into specific locations or capacities. Colocation providers offer cloud operators a pay-as-you-grow model through their flexible leasing contracts and dedicated connections between colocation facilities.

Besides scalability, collocating in third-party data centers also spares cloud providers the complexities of owning, managing and maintaining the physical infrastructure. This allows their technical staff to focus more on developing new cloud-based offerings and enhancing the client experience rather than diverting resources to facility management tasks. Overall, outsourcing infrastructure footprint to colocation providers has been a significant driver that has strengthened the rapid digital transformation brought upon by cloud computing over the past decade.

Rise of edge computing and the need for regional presence

Edge computing is emerging as the next big thing in the IT industry as more applications and workloads require ultra-low latency connectivity. With edge, the goal is to process data as close to its source as possible in order to achieve single-digit millisecond response times compared to multiple seconds on the public internet. This makes edge computing highly suitable for use cases such as autonomous vehicles, telemedicine, augmented/virtual reality, and smart manufacturing among others.

To gain an edge computing foothold, many large cloud and internet firms are deploying regional edge nodes inside third-party data centers, telecom towers, and even retail stores. They seek to establish a local presence in major metro areas worldwide to reduce distance between end users and application logic. Colocation facilities play a crucial role here by providing these firms infrastructure slots near user populations with carrier-neutral connectivity to all the major networks.

Rather than laying their own fiber, companies can leverage the existing network fabric at colocation sites which often span extensive on-ramps to the public internet as well as private interconnections. Edge resources are also outsourced to colocation providers as they offer low entry barriers through flexible lease terms and scale-out modules suited for distributed edge nodes. This has enabled the rapid expansion of multi-access edge computing infrastructure critical for next-gen low-latency applications. Overall, the rise of edge computing is driving increased infrastructure footprint at regional colocation hubs.