Data centre colocation market to double, driven by AI demand

The data centre colocation market is experiencing rapid growth as industry demand shifts toward power-optimised and AI-ready infrastructure solutions.

According to research from MarketsandMarkets, the data centre colocation sector is projected to expand from USD $104.2 billion in 2025 to USD $204.4 billion by 2030, reflecting a compound annual growth rate (CAGR) of 14.4% over the forecast period.

Several key drivers are supporting this expansion. There is a growing requirement for colocation providers to support artificial intelligence and high-density GPU workloads. Additional momentum comes from the development of hybrid-multicloud interconnection ecosystems designed for seamless data flow, and an increase in data-sovereignty regulations mandating local data hosting and compliance. These factors are creating new opportunities for service providers in the market.

Despite the positive outlook, some factors are expected to restrain widespread adoption. The intricate interdependency between enterprises and service providers introduces challenges around reduced operational control. Moreover, the demand for customised infrastructure may be at odds with the standardised service models offered by many colocation companies, potentially deterring businesses with particular deployment needs.

Managed colocation

Managed colocation is the fastest-growing service type in the data center colocation market during the forecast period, driven by companies' need to simplify IT operations and improve uptime. Traditional colocation provides secure rack space, power, cooling, and basic network access, but managed colocation adds remote-hand support, system monitoring, data backup, disaster recovery, and managed network services. This model appeals to small and mid-sized businesses, digital companies, and organizations moving to hybrid IT that lack large in-house teams but still need reliable, scalable, and compliant infrastructure. Companies can focus on their core products and services by handing routine tasks to the colocation provider. Traditional colocation remains popular among firms with strong internal IT capabilities and tight budgets, but its growth is slower. As more organizations seek predictable costs and higher service levels, demand for managed colocation is set to outpace other service types.

The distinction between managed and traditional colocation is proving significant for the market's evolution, as organisations with limited in-house resources increasingly consider outsourcing routine IT responsibilities. In contrast, more established organisations with more extensive IT teams continue to prefer traditional colocation, although this segment's growth is projected to remain slower.

Retail colocation

Retail colocation will hold the largest share of the service scale segment during the forecast period, driven by its low entry barriers, flexible contract terms, and rapid provisioning capabilities. This model - where multiple tenants share configurable rack, cage, and cabinet space - appeals to small and mid-sized enterprises, regional service providers, and branch operations of larger organizations that require quick access to reliable infrastructure without heavy upfront commitments. The pay-as-you-grow billing structure and smaller minimum power requirements further cement retail colocation's dominance, enabling businesses to scale seamlessly in response to changing workloads. Wholesale colocation, while the second-largest segment, caters primarily to hyperscalers and large enterprises seeking dedicated space, power, and cooling at scale; it continues to grow steadily but trails retail colocation's broader addressable market and faster deployment cycles.

Retail colocation's flexibility and ease of scaling are proving particularly attractive for a broad spectrum of customers. These features, alongside the option for smaller commitments in terms of power and space, position this service to maintain the largest market share within the period analysed.

Wholesale colocation, in contrast, is primarily used by hyperscale clients and large enterprises that require substantial dedicated resources. Although this segment also continues to grow, its pace lags behind the retail category, mainly due to a narrower target market and inherently longer deployment cycles.

Regional developments

North America currently holds a leading position in the data centre colocation market. This is attributed to its established infrastructure, extensive interconnection networks, and sustained demand from enterprise customers in sectors such as finance, healthcare, and cloud services.

Asia Pacific is recorded as the fastest-growing region, fuelled by significant investments in cloud and AI infrastructure. A notable example is a recent USD $411 million rupiah-denominated loan allocated for the construction of a 72-megawatt data centre campus in Indonesia's Nongsa Digital Park. This investment illustrates the region's commitment to boosting advanced, edge-ready facilities and underpins its upward trajectory in hybrid, localised colocation solutions.

The overall market's future will be influenced by the interplay between emerging technical requirements, new regulatory compliance demands, and evolving preferences for service and deployment models among enterprise customers worldwide.