The colocation industry, encompassing both multi-tenant and single-tenant data center providers, is projected to soar to a valuation of $65.2 billion by 2027, riding a robust 5-year growth CAGR of 9.4 percent, as outlined in Omdia’s Colocation Services Tracker – 2023.
This surge is anticipated to be further fueled by an acceleration in AI hardware deployments, poised to reshape the landscape of data center revenue dynamics in the coming years.
Colocation businesses are strategically aligning themselves to capitalize on this wave of AI growth. Several companies have proactively adapted their data center designs to facilitate higher rack power density, recognizing that the power consumption of servers configured for AI training mirrors that of high-performance computing (HPC) clusters essential for scientific research.
At the forefront of this industry are the top three colocation service providers worldwide: Equinix, Digital Realty, and NTT Global Data Centers (NTT GDC). These industry leaders collectively operate an extensive network of over 700 data centers and currently have over 100 construction projects in progress, as detailed in Omdia’s Data Center Building Tracker for 1H23. Impressively, these three giants represent a formidable 33 percent share of the total 2022 revenue, pegged at $41.6 billion, as reported by Omdia’s Colocation Services Tracker – 2023.
Notably, not all data centers are equipped to handle the demanding requirements of AI or HPC equipment. However, proactive industry players, including the aforementioned key providers and several others, have been anticipating and preparing for this surging trend. In recent years, data centers under construction and those operational have been meticulously designed and architected to seamlessly accommodate high-power density equipment racks.
Integral design and architectural features encompass high-density power distribution management and precision cooling systems for efficient thermal management to safeguard servers. In specific cases, colocation customers necessitate direct-to-chip liquid cooling, prompting the implementation of specialized data center plumbing designs to provide customers access to a liquid cooling loop. Alternatively, the option to install immersion cooling tanks, submerging the hottest servers in a bath of non-conductive fluids, has also emerged to meet these demands.
Achieving these advanced data center operating characteristics requires a strategic vision and a willingness to undertake significant capital expenditures (capex).
Alan Howard, Principal Analyst at Omdia, said: “Colocation industry stalwarts like Equinix, Digital Realty, NTT GDC, Flexential, DataBank, Compass, Aligned, Iron Mountain, and numerous others are purposefully shouldering this capital risk, establishing data centers that enable enterprises and cloud service providers to thrive without bearing the full financial burden.”