Data Center Colocation Market Size to Reach $105.4 Billion at a CAGR of 13.2% by 2030

Data Center Colocation Market is projected to reach USD 105.4 Billion by 2028 at a CAGR of 13.2% over the forecast period.

Data Center Colocation Market Size to Reach $105.4 Billion at a CAGR of 13.2% by 2030
Data Center Colocation Market

The Global Data Center Colocation Market is valued at USD 50.1 Billion in 2021 and is projected to reach USD 105.4 Billion by 2028 at a CAGR of 13.2% over the forecast period.

The data center colocation market refers to the practice of renting space and infrastructure from a third-party provider to house and manage IT equipment. Colocation providers offer secure, scalable, and reliable facilities that are equipped with power, cooling, connectivity, and other essential services. This allows businesses to outsource their data center needs and focus on their core operations.

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The market is highly competitive, with several established players such as Equinix, Digital Realty, and NTT Communications, as well as new entrants like Amazon Web Services (AWS) and Microsoft Azure. The providers offer a wide range of services, including wholesale and retail colocation, managed services, cloud connectivity, and disaster recovery.

Top Companies in Data Center Colocation Market

  • China Telecom Corporation Limited (China)
  • Cyxtera Technologies Inc. (US)
  • Digital Realty Trust Inc. (US
  • Coresite Realty Corporation (US)
  • Cyrusone Inc. (US)
  • Equinix Inc. (US)
  • KDDI Corporation (Japan)
  • Global Switch (UK)

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Data Center Colocation Market Dynamics:

Data centers have developed as an indispensable component of current business processes, hosting important corporate applications. IT infrastructure has evolved into a requirement for firms seeking to run their operations efficiently. As the need for data centers has increased in recent years, cloud and colocation have become valuable assets for many firms looking to expand their IT capabilities. Colocation data centers were a blessing for organizations that wanted rapid IT upscaling but lacked the necessary skills and financial resources.

The rising requirement for scalable data centers, which has reduced total IT investment, and the increasing complexity of data centers are the market's primary growth factors. The industry is also rising due to the increased use of automation and robots in server installation, disc storage management, and connection management. As a result, the high expenses of owning and operating a data center, particularly for organizations that generate uneven data quantities, are projected to support industry expansion.

Aside from cost reductions, Data Center Colocation Market provides various additional advantages to consumers. According to research, owning or developing a data center facility can cost more than USD 300 per square foot, not including laying the necessary fiber cable. In such cases, handling a whole data center facility in-house is a high-cost component for SMEs, but large-scale enterprises may easily tolerate this expense. Data Center Colocation Market is such a solution that provides SMEs with a feasible and cost-effective option for renting data center space, which is projected to fuel market expansion during the forecast period.

Furthermore, the continuous use of novel technologies, such as cloud computing, the internet of things (IoT), autonomous cars, and sophisticated robotics, is growing demand for Data Center Colocation Market. The continued advancement of these technologies has also resulted in the widespread deployment of intelligent gadgets, necessitating decreased latency.

As a result, cloud service providers may relocate their data center facilities closer to their consumers, providing high bandwidth and low latency in data transfer. Furthermore, the growing demand for lower latency in data transfers and enhanced connection, as well as the increasing penetration of smart devices, is expected to drive demand for colocation data centers. On the other side, the market potential is limited when there is an inability to create a server farm close to the specific organization. Many firms need more motivation to accept and implement server farms. The cause of this anxiety is an over-reliance on workers and allowing them to overpower them completely. Over time, each of these elements will limit the expansion of the Data Center Colocation Market industry.

What is Data Center Colocation?

Data center colocation is a service offered by third-party providers that allows businesses to rent space and infrastructure in a secure and scalable data center facility. These facilities are equipped with essential services such as power, cooling, connectivity, and security to house and manage IT equipment.

Instead of building and maintaining their own data centers, businesses can outsource their IT infrastructure to colocation providers. This allows them to focus on their core operations and avoid the capital and operational expenses associated with owning and operating their own data centers.

Colocation providers offer a range of services, including wholesale and retail colocation, managed services, cloud connectivity, and disaster recovery. Wholesale colocation provides large-scale space and power, while retail colocation offers smaller, customized solutions. Managed services can include remote hands support, security, and maintenance. Cloud connectivity enables businesses to connect their IT infrastructure to cloud services like AWS, Azure, or Google Cloud. Disaster recovery services offer backup and recovery solutions in the event of an outage or disaster.

Colocation providers offer a range of benefits to businesses, including cost savings, scalability, reliability, and security. They also provide access to advanced technologies, technical expertise, and 24/7 support. By outsourcing their IT infrastructure to colocation providers, businesses can improve their operational efficiency, reduce downtime, and better manage their IT budgets.

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Data Center Colocation Market Challenges

Intense Competition: The market is highly competitive, with many established players and new entrants, which can lead to price pressure and reduced margins for providers.

Security Risks: Data centers house sensitive and confidential information, making them attractive targets for cyber attacks. Providers need to implement robust security measures to protect against data breaches and other security threats.

Regulatory Compliance: Data centers are subject to numerous regulatory requirements, such as the EU General Data Protection Regulation (GDPR) and the Payment Card Industry Data Security Standard (PCI DSS), which can be complex and costly to implement.

Rising Energy Costs: Data centers consume a significant amount of energy, and energy costs are expected to rise in the future. Providers need to explore new technologies and strategies to reduce their energy consumption and lower costs.

Infrastructure Maintenance: Data center infrastructure requires regular maintenance and upgrades to ensure optimal performance and reliability. This can be costly and time-consuming, particularly for older facilities.

Capacity Constraints: The demand for colocation services is increasing rapidly, but there are limited options for expanding data center capacity due to physical constraints and zoning regulations.

Customer Dependence: Colocation providers rely heavily on their customers' businesses, which can be affected by economic downturns or changes in market conditions. This can create instability in the market and impact providers' revenue streams.

Key Developments:

  • In April 2022, Compass Datacenters, an American colocation company, developed a new business unit named Compass Quantum, which will provide modular data centres as a service. Each module provides enough space, power, and cooling to power 100kW of IT equipment in a 2N redundant arrangement.
  • In March 2021, Digital Realty Trust, Inc. announced the acquisition of InterXion to fulfill the growing need for colocation and hyper-scale infrastructure in the Americas, Europe, and Asia Pacific. This acquisition has expanded the customer base as well as the product portfolio of the company.

Regional Analysis

North America dominated the market and accounted for 43.6% market share of the global revenue in 2021 due to the strong presence of numerous large cloud service providers and SMEs establishing colocation data centers across the area. Furthermore, rising e-commerce sales in the United States boost the regional market growth. Retailers are extensively investing in their IT infrastructure to save consumer data that can be used to determine customer buying habits and product requests based on numerous categories such as area, gender, and age group. Since the pandemic breakout, the growing use of OTT platforms, streaming, and gaming has contributed to rising demand across North America. To accommodate the growing volume of data, various cloud service providers and social media businesses made significant investments in leasing colocation facilities in 2021. During 2021, overall inventory in the primary US market increased by 17% to 3,358 MW in capacity. With impending breakthroughs in 5G and IoT technologies, North America's Data Center Colocation Market is likely to increase further in the next years.

Conversely, Asia Pacific is expected to grow at a higher CAGR throughout the projected period because of the region's growing internet users. The presence of some of the region's top IT BPO outsourcing service providers and software enterprises is also helping with industry growth. Furthermore, the increasing usage of smart products and technologies has resulted in greater data volumes, prompting enterprises across industries to establish data centers.

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