Global Data Center Colocation Market is Estimated to Witness High Growth Owing to Increased Demand for Third-Party Data Center Services and Rapid Digitalization
The Global Data Center Colocation market is estimated to be valued at US$ 82.46 Bn in 2024 and with CAGR of 12.3% over the forecast period 2024-2031. With the growing need for scalable and cost-effective data center infrastructure, the demand for third-party data center services has increased substantially. Furthermore, the rapid digital transformation across industries has fueled data generation in large volumes.
Market Dynamics:
Increased Demand for Third-Party Data Center Services: With the growth in data volumes, managing data center infrastructure has become challenging for many organizations. This has driven increased demand for flexible and scalable third-party data center services where organizations can lease data center space and infrastructure as per their evolving needs. This has significantly boosted the global data center colocation market.
Rapid Digitalization across Industries: Digital transformation initiatives across industries such as IT, telecom, BFSI, healthcare, etc. have significantly increased data traffic. This includes increased remote work and online collaborations. The exponential data generation has necessitated additional data storage, processing, and management capabilities. This has accelerated the demand for data center colocation services to efficiently handle heavy data workloads.
Growing Demand for Data Center Consolidation is driving the Market Growth
One of the major drivers for the global data center colocation market is the growing demand for data center consolidation across industries. With increasing digital transformation, organizations are generating huge amounts of data that needs to be securely stored and processed. Maintaining their own private data centers for such large scale operations is capital intensive and inefficient. Companies are increasingly opting for colocation services that provide shared infrastructure and utilize economies of scale to reduce costs significantly. Colocation services allow organizations to focus on their core business activities while outsourcing the management and maintenance of their IT infrastructure. This is driving many companies to consolidate their infrastructure in colocation facilities.
Increasing Adoption of Cloud Services is Fueling Market Growth
Another key driver for the Data Center Colocation market is the rising adoption of cloud-based services among organizations. Cloud platforms have become integral to digital operations by providing scalable, on-demand access to computing power, storage, databases and more. However, maintaining private cloud platforms mandates huge upfront infrastructure investments and ongoing management costs. Colocating cloud infrastructure in third-party data centers allows cloud service providers to focus on their core competencies while reducing infrastructure ownership costs. It also enables them to rapidly scale up cloud capacity based on demand. As more businesses leverage cloud-first strategies, their reliance on colocation facilities managed by experts is increasing significantly which is propelling market expansion.
High Initial Capital Investments act as a Restraint
One major challenge faced by the Data Center Colocation market is the high upfront capital costs associated with setting up and equipping large scale data center infrastructure. Building carrier-neutral colocation facilities with redundant power, cooling systems and security solutions is a hugely capital-intensive endeavor requiring multi-million dollar investments. The costs of acquiring land and constructing robust buildings to house thousands of servers is also substantial. Such massive initial capital outlays deter new entrants and restrict growth opportunities for small players. This dependence on large capital funding acts as a key restraint for the overall colocation industry.
Stringent Regulatory Compliance adds to Operational Costs
Colocation facilities deal with sensitive customer data and maintain mission critical infrastructures. This subjects them to stringent industry regulations around data privacy, security, business continuity plans, etc. Compliance with such regulatory guidelines demands certification of operations, extensive documentation and regular audits. It also necessitates robust governance structures and hiring of compliance professionals. All these measures drive up the operational costs significantly for colocation providers. Developing nations with fragmented regulatory frameworks pose additional challenges. Maintaining compliance with a myriad of global, national and local laws acts as a restraint on profit margins and return on investments for colocation companies.
Emerging Markets present Lucrative Opportunities
While developed regions already have mature colocation ecosystems, emerging markets in Asia, Latin America, Africa and the Middle East offer substantial growth opportunities. Digitalization initiatives and rising internet penetration in these regions are driving the demand for cloud and colocation infrastructure at an exponential pace. However, the availability of suitable data center facilities is still limited. This wide gap between the growing needs of a digitalizing population and inadequate supply presents lucrative business prospects. Colocation operators can tap into these largely untapped emerging markets and fulfill the rising colocation requirements of industries undergoing digital transformation.
Growing Edge Computing needs open new Avenues
Another key opportunity area for the colocation industry lies in the rise of edge and distributed computing architectures. Traditional centralized cloud models are becoming ineffective for applications that demand ultra-low latency such as autonomous driving, telemedicine, AR/VR etc. This is fueling the deployment of micro data centers closer to the end users to process and analyze data in real-time. Colocation vendors can leverage their edge locations and local infrastructure partnerships to offer edge colocation services to enterprises. This will enable them to capitalize on the booming demand for distributed edge infrastructure driven by IoT, AI and other latency-sensitive technological advancements.
Link: https://www.coherentmarketinsights.com/market-insight/data-center-colocation-market-5312
Key Developments:
- In August 2023, Digital Realty (NYSE: DLR), the largest global provider of cloud- and carrier-neutral data center, colocation, and interconnection solutions, launched high-density colocation services across its PlatformDIGITAL global data center platform. This new offering, available in 28 markets across North America, EMEA, and Asia Pacific, supports workloads of up to 70 kilowatts per rack and incorporates advanced Air-Assisted Liquid Cooling (AALC) technologies. Digital Realty's high-density colocation services are designed to address the challenges of data growth and the rising use of artificial intelligence (AI) by providing infrastructure optimized for high-performance computing (HPC) applications.
- In May 2022, CoreSite, a leading hybrid IT solutions provider and a subsidiary of American Tower Corporation, announced the installation of a cutting-edge, energy-efficient cooling system at its Boston data center. This upgrade is anticipated to save around eight million kilowatt-hours annually and underscores CoreSite's commitment to improving power and cooling efficiency across its data center network. The new cooling system includes a chiller plant with advanced technology designed to optimize energy usage while accommodating the varied needs of its customers.
Key Players:
Alibaba Cloud, CyrusOne Inc., Digital Realty Trust, Inc., Equinix, Inc., Global Switch, Iron Mountain Incorporated, NTT Communications Corporation, QTS Realty Trust, Inc., Rackspace Technology, Inc., STT GDC Data Centers, Switch, Inc., T5 Data Centers, Telehouse International Corporation, TierPoint LLC, and Vertiv Holdings Co.
