Data Center Colocation Market is expected to reach US$ 182.58 Billion by 2031

Rising Regulatory Compliance and Data Sovereignty Boosts Data Center Colocation Market Growth

According to our new research study on “Data Center Colocation Market Forecast to 2031 – by Type, Enterprise Size, and Industry Vertical,” the data center colocation market size was valued at US$ 74.13 billion in 2024 and is projected to reach US$ 182.58 billion by 2031; it is expected to register a CAGR of 13.7% during 2025–2031. The market report highlights key factors contributing to the data center colocation market share and prominent players, along with their developments in the market.

Governments worldwide are increasingly enacting stringent data sovereignty and localization regulations, creating a strategic growth opportunity for data center colocation providers. For enterprises operating across borders—especially in sectors such as finance, healthcare, and public services—these rules mandate that data generated within a jurisdiction must be stored and processed locally, driving the demand for geographically compliant colocation facilities. Today, more than 100 countries have enacted some form of data residency or data sovereignty regulation. As of 2024, 74 countries imposed conditional restrictions on data transfers, while 18 countries maintained strict localization laws for personal or critical data. In India, the Digital Personal Data Protection Act, 2023, and the Reserve Bank of India mandates require payment system data to be stored within the country for at least six months. These policies have elevated data centers to infrastructure status and unlocked access to public financing. Within the European Union, the GDPR (since 2018) imposes de facto localization by prohibiting data transfers to non-adequate jurisdictions unless strict controls are in place. EU regulations such as the Data Governance Act and Data Act further reinforce sovereign data handling and cross-border data sharing frameworks.

Data Center Colocation Market

Colocation facilities also reduce compliance risk, streamline regulatory reporting, and support disaster resilience while keeping regional sovereignty intact. In geographies with emerging localization laws, such as the European Union, Brazil, India, and Russia, enterprises increasingly look to third-party operators that satisfy both regulatory and operational governance. As regulatory complexity rises globally, colocation providers are uniquely positioned to deliver the governed, sovereign, and scalable infrastructure enterprises require, making them strategic enablers of compliance and business continuity in the digital age.

Data Center Colocation Market Trends

Artificial intelligence is anticipated to bring about lucrative growth trends for the data center colocation market. AI in data centers protects networks, filters alerts, and moves workloads. The rise of AI compute as a service is anticipated to positively affect the data center colocation market. The rise of automation and robotics to install servers and manage disk storage and interconnection is also bolstering the growth of the market. Data center colocation providers are focusing on innovation and energy-efficient solutions to address both customers' and regulatory requirements. The shift toward sustainable energy consumption is bolstering the growth of edge computing. In 2024, AI data centers generated US$ 12.50 in annual revenue per watt, compared to US$ 4.20 for traditional data centers.

The global rise in data use, the advent of 5G, and a long-term remote workforce are projected to drive the demand for edge computing. Enterprises are adopting AI to meet business challenges that include increasing efficiency, in-depth predictive analysis, and improving customer experience. AI-ready data center colocation facilities are utilizing graphics processing units (GPUs) to accelerate applications’ processing opportunities in the future. Thus, companies such as NVIDIA are offering DGX-1 servers with GPUs, with deep learning and increased performance levels that provide increased opportunities for enterprises to cater to their business objectives.

The data center colocation market growth is attributed to a surge in the adoption of retail colocation. Retail colocation is designed for businesses, startups, and government agencies that require a smaller-scale data center presence. Typically, this refers to deployments involving fewer than 10 colocation racks or cabinets. Retail colocation space can consist of individual racks, either positioned side-by-side or spread throughout a facility interconnected via cross-connects rather than enclosed in a private cage. Providers often offer flexible options, including shared colocation space in increments like 1U, 2U, 3U, or 4U, as well as dedicated locking quarter, half, or full racks. Customers may also opt for multiple locking racks. Services are usually bundled at a flat monthly rate based on the amount of power (e.g., per circuit or kilowatt) included. For example, a provider might offer a full rack with 208V/20A power and a 100 Mbps blended internet connection at a set price.

In addition to the monthly service fee, there is typically an installation or setup fee, known as a non-recurring charge (NRC). Both retail and wholesale colocation providers generally incorporate infrastructure buildout costs into the initial deposit and monthly recurring charges (MRC). These costs may include power delivery upgrades, cooling systems, fiber connectivity, containment structures, facility access, security measures, and installation of essential systems such as UPS units and backup generators. For retail deployments, these costs tend to be lower due to the smaller scale and reduced complexity, and many racks may already be pre-configured and ready for use.

The data center colocation market analysis is performed by considering the following segments: type, enterprise size, and industry vertical. By type, the market is segmented into retail colocation, wholesale colocation, and hybrid cloud-based data center colocation. The retail colocation segment held the largest data center colocation market share in 2024. By enterprise size, the market is segmented into large enterprises and SMEs. The large enterprises segment held a larger share of the data center colocation market in 2024. Based on industry vertical, the data center colocation market report is divided into IT & telecom, BFSI, healthcare, retail, and others. The IT and telecom segment dominated the share of the data center colocation market in 2024. The global data center colocation market is a strategic asset for IT and telecom companies seeking scalable, secure, and globally connected infrastructure. As demand for high-speed connectivity, cloud services, and edge computing grows, colocation provides the flexibility to deploy core and edge nodes closer to end users. Telecom providers benefit from carrier-neutral facilities to expand network reach, reduce latency, and support 5G and IoT deployments. Meanwhile, IT service providers use colocation to offer managed hosting, hybrid cloud, and disaster recovery solutions to clients. Colocation enables rapid deployment, predictable costs, and high availability, which are critical for businesses operating in competitive and fast-moving digital markets. With access to cloud on-ramps, robust interconnection ecosystems, and Tier III and IV facilities worldwide, IT and telecom firms can support global customers while optimizing infrastructure costs and performance. As digital transformation accelerates, colocation becomes a foundational component of hybrid architectures, delivering the scale and resilience required to meet growing data and connectivity demands.

CoreSite Realty Corporation, CyrusOne Inc, Iron Mountain Inc, Digital Realty Trust Inc, Equinix Inc, Telehouse, NTT Data Corp, International Business Machines Corp, Rittal GmbH & Co KG, and AT&T are leading companies profiled in the data center colocation market report.

Contact Us

Phone: +1-646-491-9876
Email Id: sales@theinsightpartners.com