Revenue Forecast

The revenue estimate for the base year 2023 is $23.33 billion, with a CAGR of 9.5% for the study period.

The Impact of the Top 3 Strategic Imperatives on the Data Center Colocation Services Industry

Disruptive Technologies

Why

• Enterprises are prioritizing digital transformation as a strategic imperative. This has led to increased investments in digital technologies such as artificial intelligence (AI), machine learning (ML), big data, cloud computing, and the internet of things (IoT), resulting in a sharp rise in demand for colocation services.

Frost Perspective

• Service providers are integrating scalable data center design strategies to effectively accommodate the influx of new application workloads driven by the widespread adoption of AI and ML. This trend is expected to have a lasting impact on the demand for data center services.

Competitive Intensity

Why

• The colocation market in North America is characterized by significant fragmentation, with prominent data center service providers maintaining a widespread geographic presence. The region is experiencing intense competition across key segments, including retail and hyperscale.

Frost Perspective

• The construction of new data centers continues in strategic locations, intensifying competition in highly concentrated areas such as Northern Virginia, Dallas, and California's Silicon Valley. Anticipated competition growth is also foreseen in secondary locations such as Phoenix, Portland, OR; Atlanta; and Columbus, OH.

Transformative Megatrends

Why

• Climate change and environmental sustainability are pivotal considerations in the design and strategy of data centers. Service providers are innovating energy-efficient, environmentally friendly solutions to reduce carbon footprint and operational expenses.

Frost Perspective

• Sustainable data centers and carbon neutrality will emerge as the key competitive advantages. Sourcing renewable energy will be an essential element in service providers’ strategies.

Scope of Analysis

• Revenue for the forecast period reflects the total market revenue from data center colocation services.
• Colocation refers to space rental, including private vaults, floor space, cages, or racks in different sizes. Basic infrastructure-level support, including power, cooling, physical security measures, and network connectivity, are provided. Additional network and bandwidth requirements may incur further charges. Customers pay monthly or annual rent for the space (typically by power capacity) and basic facilities and should purchase their own servers.
• Colocation market size includes hyperscale and retail segments but not wholesale, as it may get double counted. Additional professional and system support services, security management, and related managed services may be provided, depending on the colocation deal terms.
• A Carrier-neutral Service Provider is a data center colocation facility independent of network providers. These are typically not operated by telecom service providers and offer multiple connectivity options.
• Raised Floor Space includes rack or physical space for commercial colocation services, typically measured in square feet or square meters.
• In this analysis, data center tier classification follows the definition from The Uptime Institute (unless otherwise stated).

Growth Drivers

• The demand for hyperscale data centers is experiencing rapid growth, primarily propelled by public cloud service providers.
• Enterprise colocation demands continue to surge because of ongoing digitization efforts, the adoption of advanced technologies such as AI and IoT, and emerging use cases.
• Increasing investment from private equity firms enables service providers to expand their capacity and enhance their infrastructure, thereby attracting customers with top-tier data centers.

Growth Restraints

• Limited availability of land in select locations and high demand for and scarcity of power are encouraging service providers to implement strategies such as land and power banking, careful selection of expansion sites, and investigation of alternative power sources.
• Rising prices of power and real estate continue to be challenges for service providers predominantly in primary markets.
• The supply chain is still challenging. Supply pressure has pushed back construction timelines, while demand remains strong.

Competitive Environment