Global Data Center Colocation Market Landscape 2024-2029

MARKET INSIGHTS

The global data center colocation market by investment was valued at USD 43.04 billion in 2023 and is expected to reach USD 80.37 billion by 2029, growing at a CAGR of 10.97% during the forecast period. In 2023, the global market saw significant investments driven by global, regional, and local operators worldwide. Investments were also bolstered strong take-up by from cloud and technology giants. The advent of AI and machine learning workloads has skyrocketed the demand and created a huge gap between supply and demand. Furthermore, the U.S. and China continue to dominate the global data center colocation market landscape in terms of YOY capacity addition as well as revenue generated in offering the service in the market.

KEY HIGHLIGHTS

1. Even though challenges such as procuring power, supply chain constraints, and labor shortage still prevail, the operators are continuing to deploy high capacity into the markets.
2. Explosive demand from Artificial Intelligence will lead to the addition of around 48 GW of data center capacity during 2024-2029.
3. The European data center colocation market is mature, countries like the UK, Germany, and Norway remain hotspots for new data center development, while contributions from secondary markets such as Spain, Italy, Finland, Portugal, and Greece are expected to grow year-over-year.
4. In the Middle East & Africa (MEA), the data center colocation market is rapidly expanding, driven by government investments in smart city projects and cloud infrastructure in the UAE, Saudi Arabia, and South Africa.
5. The APAC region remains highly dynamic, with strong investments from global and local providers. Countries like China, Malaysia, India, Japan, Australia, and South Korea, are seeing increased data center construction due to growing demand for AI workloads and the expansion of cloud service providers into multiple new markets.
6. Renewable energy is increasingly used to power data centers, and edge data centers are emerging to meet local connectivity demands.

KEY MARKETS TRENDS

Artificial Intelligence Growth Enabling Construction of Data Centers

1. The rapid growth of new and disruptive technologies, particularly AI, has resulted in unprecedented power dynamics, digital transformation, and global economic effects. With the broad deployment of AI, particularly in general-purpose applications such as ChatGPT, a quick AI revolution is expected.
2. The emergence of GenAI has sparked queries regarding its integration into products, benefit optimization, and ethical usage in the face of growing demand from vendors, consumers, and enterprises alike. Subsequently, the growth of AI is projected to support the data center colocation market growth. Also, following the U.S. and China, the EU has emerged as a major player in AI research and application. APAC countries are increasingly embracing AI, driven by the growing prevalence of automation and intelligent operations. Various governments in the region are introducing numerous AI strategies. For example, the Hong Kong government intends to leverage AI to monitor disasters and manage energy consumption.

Data Centers Prioritize Energy-Efficient, Sustainable Operations

1. Data center operators are leveraging solar, wind, and other renewable energy technologies to reduce carbon footprint. The adoption of renewable energy aims to align data centers with sustainability objectives and minimize the environmental impact.
2. Green data centers are revolutionizing operations, paving the way for a more sustainable and eco-friendly future. Minimizing energy costs will be pivotal for the future growth of data centers. As the region prioritizes environmental sustainability, green data centers will play an increasingly crucial role in organization’s digital advances while mitigating their environmental footprint.
3. Data center operators are securing green and sustainability-linked loans to support eco-friendly projects. Examples include STACK Infrastructure's USD 3 billion green financing in August 2024 and DataBank’s USD 725 million loan in April 2024, both aimed at funding sustainable data center expansions.

INFRASTRUCTURE INSIGHTS

1. The global data center colocation market is growing rapidly, with crucial infrastructure components that are vital for maintaining high reliability, energy efficiency, and scalability in data centers.
2. UPS systems are shifting towards lithium-ion batteries instead of traditional lead-acid ones due to their smaller size, longer lifespan, and lower maintenance needs. Leading companies like Equinix, Digital Realty, and QTS Realty Trust are making significant investments in these advanced UPS systems to ensure uninterrupted operations.
3. As the data center colocation market moves towards sustainable practices, providers such as ST Telemedia Global Data Centers, GDS Services, Compass Datacenters, STACK Infrastructure, Vantage Data Centers, and Digital Realty are starting to utilize alternative fuels like Hydrotreated Vegetable Oil (HVO) to cut down on carbon emissions from backup power sources. Digital Realty began using Hydrotreated Vegetable Oil (HVO) in its backup generators in California in April 2024, which significantly reduces carbon emissions compared to conventional diesel fuel. In July 2024, ST Telemedia Global Data Centres announced the replacement of its diesel generators in Singapore data centers with HVO generators.
4. Racks, typically ranging from 36U to 55U, are evolving with standards like the Open Compute Project (OCP) and Open19, enabling customizable, scalable, and community-driven rack solutions that better meet the changing needs of colocation providers and their clients.
5. Technologies such as row-based containment systems, passive/active rear door exchanges, liquid immersion, and liquid-to-chip cooling are becoming more popular for enhancing energy efficiency. Facilities like Equinix DB3 in Dublin are implementing chilled water systems with free cooling to optimize cooling while saving energy.
6. In cooler climates, the adoption of free cooling is on the rise to decrease energy consumption. Facilities using free-cooling chillers to take advantage of low external temperatures, a trend that has been gaining grip for a long time in Western Europe, China, Japan, South Korea, Australia, the Nordics, the US, and Canada.
7. In locations where water is scarce, providers in the data center colocation market are minimizing water usage by using air-cooled systems or recycled water. Digital Realty has rolled out water-efficient cooling solutions in its California facilities to ensure a balance between operational efficiency and sustainability.
8. Facilities in the data center colocation market are increasingly adopting modular infrastructures namely, UPS systems and PDUs to gradually scale their power infrastructure. Flexential, for example, employs modular power solutions in its Atlanta data center to effectively address rising customer demand without incurring substantial upfront capital costs.

RETAIL VS WHOLESALE COLOCATION

1. The global data center colocation market is expected to experience significant growth from 2024 to 2029, fueled by rising demand for wholesale/hyperscale colocation services. The market by revenue is projected to grow at a CAGR of 10.96% during this period, with substantial revenue anticipated due to increasing demand from AI and machine learning.
2. From 2020 to 2023, the market demonstrated consistent year-over-year growth, with revenue increasing from USD 42.89 billion in 2020 to USD 60.41 billion in 2023, indicating a steady growth in colocation adoption.
3. In terms of revenue generated from colocation services, the APAC region leads the global data center colocation market, accounting for nearly 40% of revenue in 2023, followed by the Americas at over 38%, among others.
4. The data center colocation market has witnessed over 40+ new entrants in the last two years, which majorly include real estate asset management and subsidiaries of power producers.
5. The expansion of data center capacity by leading cloud service providers is a key growth factor in the wholesale colocation segment, making it the preferred option for enterprises with high-capacity needs for cloud, big data, and AI applications.