Data Center Colocation Market Size, Share & Trends Analysis Report By Colocation Type (Retail, Wholesale), By End-use (IT & Telecom, Healthcare), By Enterprise Size (Large Enterprises, SMEs), And Segment Forecasts, 2021 - 2028

Report Overview

The global data center colocation market size was valued at USD 44.42 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 13.3% from 2021 to 2028. Data centers have emerged as an inseparable part of modern business practices responsible for running critical business applications. IT infrastructure over the years has emerged as a necessity for enterprises that seek to run their businesses effectively. As the demand for data centers surged through the last couple of years, cloud and colocation became a vital asset for several businesses that need to scale up their IT capabilities. Colocation data centers were a boon for enterprises that needed quick IT upscaling; however, they lacked the expertise or monetary resources required to do so.

Therefore, high costs associated with owning and maintaining a data center, particularly for companies that generate inconsistent data volumes, are expected to be a key factor favoring the market growth. Apart from capital expenditure savings, data center colocation offers several other benefits to customers. Research studies suggest that owning or constructing a data center facility can cost over USD 300 per square foot, which is in addition to the cost incurred for laying the required fiber cabling. In situations like these, in-house handling of an entire data center facility is a high-cost component for SMEs, whereas large-scale organizations can easily absorb this cost. Data center colocation is one such solution that supports SMEs with a viable and affordable alternative of renting data center space, which is expected to drive the market growth over the forecast period.

The growing volume of data from social media and Over-The-Top (OTT) platforms has augmented the demand for data centers and colocation services. The number of active users on social media is rising exponentially and, thus, contributing to the growing data from these platforms. For instance, the total number of monthly active Facebook users in 2020 rose to approximately 2.74 billion as compared to 2.38 billion in 2019. The number of social media users is estimated to rise even more in the coming years, which, in turn, is anticipated to drive the demand for colocation centers. Furthermore, the Covid-19 pandemic has resulted in the growing usage of OTT and streaming services leading to increased data volumes, which is expected to fuel the market growth.

The emergence of technologies, such as the Internet-of-Things (IoT), cloud computing, autonomous vehicles, and advanced robotics, has resulted in the increased demand for higher bandwidths and faster data processing. The successful usage of these technologies requires lower latency and faster network connectivity. Colocation data centers are suitable to fulfill such requirements as the operators can locate their data center facilities in proximity to the users, thereby offering enhanced storage and networking services. In addition, the emergence of 5G is expected to boost the deployment of colocation services as it provides an opportunity for colocation providers to offer services in remote locations.

The rising adoption of cloud data centers, owing to their lower costs is expected to act as an inhibitor to market growth. Smaller organizations are increasingly adopting cloud services as they offer scalable low costs, eliminate the need for IT staff, and have lesser overheads. Colocation centers offer cost benefits in the long run along with flexibility in terms of total server control. Owing to these features, enterprises are widely opting for colocation services.

Data Center Colocation Market Trends

The rapid growth of structured, as well as unstructured data along with the increasing demand for cloud computing is anticipated to propel the global data center colocation market growth over the forecast period. Further, increasing capital expenditure in owning and maintaining huge computing facilities is a key driver expected to spur the adoption of colocation data centers in Europe. Moreover, predictable expenses, high reliability, easy scalability, all-in-all lower costs are some of the key factors influencing colocation demand, a trend expected to continue over the forecast period.

With the emergence of edge computing applications, the demand for high-capacity networks is increasing significantly. Also, to cope up with the challenges of network latency and the need for immediate real-time insights has led to the evolution of multi-locational hybrid data architectures. As a result, the data transmission among the data centers or private exchanges points has become crucial. Besides, businesses are shifting to the cloud, leading to the requirement of higher bandwidth facilitating faster data processing speeds and seamless data transfer.

The emergence of technologies such as 5G, and immersive technologies like augmented reality, virtual reality, and AI has also contributed to the need for allocating higher bandwidths for sharing data between enterprises. Furthermore, the demand for data center colocation is rising due to the continued adoption of various disruptive technologies, such as cloud computing, IoT, autonomous vehicles, and advanced robotics. The constant expansion of these technologies has equally triggered the adoption of smart devices, thereby creating the demand for lower latency. As such, colocation presents an opportunity to the cloud service providers to move their data center facilities in proximity to the users, thereby providing high bandwidth and low latency in data transfer.

According to research conducted by Telefonaktiebolaget LM Ericsson, the global mobile data traffic by end of 2020 was approximately 51 exabyte, which is expected to reach 226 exabyte by 2026. This surge has led to network capacity expansions throughout the 4G era and would eventually prepare the world for mass-market adoption of 5G networks. The 5G networks are expected to capture approximately 54% in terms of mobile data by 2026. The growth can also be ascribed to the increase in the number of cellular radio sites and the deployment of additional wireless spectrum. As the industry moves toward the fifth generation of cellular network technology, the demand of mobile data usage for cloud gaming, OTT platforms, streaming services and immersive applications is expected to increase at a significant rate. As a result, network operators are propelled to expand their network capacities to provide enhanced customer experience, which in turn is anticipated to drive the adoption of colocation services.

IT staffing is one of the major concerns for colocation datacenter operators. The aging workforce is making it difficult for colocation providers to cope up with increasing IT workloads. According to the Uptime Institute’s 2019 Data Center Survey, several experienced managers are likely to leave the workforce in the next few years. This would eventually create a labor shortage in datacenter facilities. Based on the survey, 28% of the respondents believed that labor shortage is one of the key limiting factors for the data center market.

Colocation Type Insights

In terms of revenue, the retail type segment dominated the market with a share of over 72% in 2020 and is estimated to retain the leading position throughout the forecast period. Retail colocation enables enterprises to rent a part of space within a data center. This offers enterprises flexibility when managing small volumes of data or when infrastructure is needed only for a limited period. It is particularly beneficial for small-scale organizations as their requirement for data storage is limited, compared to the large organizations. Moreover, the retail type is highly suitable for companies that want to leverage the benefits of colocation services but have a limited budget.

The wholesale type segment is expected to register the highest growth rate over the forecast period owing to several major cloud service providers and hyperscalers moving toward wholesale colocation. Large enterprises have a wide customer base, which leads to the generation of substantial volumes of data and the need for large commercial space for accumulating their servers, in turn, creating a demand for wholesale colocation. For instance, hyperscale cloud service providers, such as IBM Corp. and Salesforce.com, Inc., have leased wholesale data centers in the U.S. This trend is expected to continue with the increasing adoption of cloud technology.

Enterprise Size Insights

In terms of revenue, the large enterprises segment dominated the market in 2020 with a share of over 62%. This high share is attributable to the high product demand among large organizations to manage and maintain data efficiently. Large enterprises from various sectors across the globe generate huge volumes of data, which requires infrastructure with high storage capacities. Data center colocation offers an option for large enterprises to lease large floor space in proximity to the users while also scaling up the infrastructure based on the demand from that particular region.

The SMEs segment is estimated to record the fastest CAGR over the forecast period due to the increasing number of SMEs and startups in developing countries, such as India and China. SMEs have financial limitations, due to which, cost reduction becomes a major factor for the organization’s growth. In addition, the deployment of colocation data centers helps small enterprises to save up on operational costs and fixed expenses. As such, SMEs find it suitable to adopt colocation data center facilities rather than owning and operating them, thereby driving the segment growth.

End-use Insights

The IT & telecom segment led the global market with a revenue share of more than 27% in 2020. The high share of this segment is attributed to the increased number of mobile internet users and the continued development of new applications and software in the industry. According to the GSM Association (GSMA), in 2019, about 3.8 people connected to the mobile internet, an increase of 250 million users from 2018. This number is bound to rise due to the increasing adoption of smartphones with advanced features. Meanwhile, the emergence of 5G is further expected to boost the IT & telecom sector growth, thereby creating large data volumes and driving the market growth.

The healthcare segment is expected to register the highest CAGR over the forecast period owing to the increasing technological advancements in the hospital industry. In addition, certain government regulations, such as the American Recovery and Reinvestment Act in 2014, have made it essential for public and private healthcare service providers in the U.S. to maintain Electronic Health Records (EHRs) of patients. This has led to the need for data storage solutions among healthcare service providers. The growing volumes of patient data across the globe are anticipated to increase product adoption in the healthcare sector. Moreover, the global pandemic is expected to increase the need for data storage in the healthcare sector for research purposes.

Regional Insights

North America was the dominant regional market in 2020 and accounted for a revenue share of over 41% in 2020. The regional market is estimated to expand further at a significant CAGR from 2021 to 2028 due to the strong presence of several major cloud service providers and SMEs deploying colocation data centers across the region. Moreover, increasing e-commerce sales in the U.S. are contributing to regional market growth. Retailers are investing heavily in their IT infrastructure for storing customer data, which can be used to identify customer buying patterns and product demands based on various categories, such as region, gender, and age group.

Asia Pacific is estimated to record the highest CAGR over the forecast period owing to the escalating number of internet users across the region. The presence of some of the largest IT BPO outsourcing service companies and software firms in the region is also contributing to the market growth. Moreover, the growing adoption of smart appliances and technologies has resulted in increased data volumes, leading organizations from various sectors to deploy data centers.

The surge in the usage of OTT platforms, streaming, and gaming has contributed to increased demand across North America since the pandemic outbreak. Additionally, several cloud service providers and social media companies invested aggressively in leasing colocation facilities in 2021 in order to cater to the increasing volume of data. The total inventory in the primary U.S. market grew by 17% to 3,358 MW in capacity during 2021. With upcoming developments in the 5G and IoT technologies, the data center colocation market is expected to expand further over the next few years across North America.

The Asia Pacific is anticipated to be the fastest growing region over the forecast period. Surging demand for data storage primarily to secure and safeguard information is a crucial factor expected to contribute to colocation demand. In Europe, the rising adoption of connected technologies, thanks to a cloud-friendly infrastructure and stringent data compliance regulations, is driving the need for interconnection hubs. The implementation of GDPR plays a critical role in creating a regional demand for data centers to safeguard data and prevent it from cross-border sharing, which bodes well for market growth.

Key Companies & Market Share Insights

The market is fragmented and characterized by a high degree of competition. Major companies are focusing on enhancing their market share by adopting inorganic growth strategies, such as partnerships, acquisitions & mergers, and collaboration. For instance, in March 2020, Digital Realty Trust, Inc. announced the acquisition of InterXion with an aim to meet the demands for colocation and hyperscale requirements in the Americas, EMEA, and Asia Pacific regions.

Companies are also focusing on the geographical expansion of their business. For instance, in February 2020, Equinix, Inc. announced the launch of its data center in Melbourne, Australia, to support the demand from the government’s smart city development plans and the interconnection requirements of local customers. In October 2019, Cyxtera Technologies, Inc. partnered with CyrusOne Inc. to launch a facility in Amsterdam. Some of the key companies operating in the data center colocation market are:

• China Telecom Corp. Ltd.

• CoreSite Realty Corp.

• CyrusOne, Inc.

• Cyxtera Technologies, Inc.

• Digital Realty Trust, Inc.

• Equinix, Inc.

• Global Switch

• NaviSite

• NTT Communications Corp.

• Telehouse

Data Center Colocation Market Report Scope

Segments Covered in the Report

This report forecasts revenue growth at the global, regional, and country levels and provides an analysis of the latest industry trends in each of the sub-segments from 2016 to 2028. For the purpose of this study, Grand View Research has segmented the global data center colocation market report based on colocation type, enterprise size, end-use, and region:

• Colocation Type Outlook (Revenue, USD Million, 2016 - 2028)

  • Retail

  • Wholesale

• Enterprise Size Outlook (Revenue, USD Million, 2016 - 2028)

  • SMEs

  • Large Enterprises

• End-use Outlook (Revenue, USD Million, 2016 - 2028)

  • Retail

  • BFSI

  • IT & Telecom

  • Healthcare

  • Media & Entertainment

  • Others

• Regional Outlook (Revenue, USD Million, 2016 - 2028)

  • North America

    • U.S.

    • Canada

  • Europe

    • U.K.

    • Germany

    • France

    • Austria

    • Switzerland

    • Benelux

    • Nordics

    • CEE

  • Asia Pacific

    • China

    • India

    • Japan

  • Latin America

    • Brazil

    • Mexico

  • Middle East & Africa