03/11/2025
Global Colocation Market to Skyrocket Past $330B by 2035: The global data center colocation market is entering a decade of unprecedented growth, driven by accelerating digital transformation, the rise of artificial intelligence, and mounting regulatory pressure for data sovereignty. According to new analysis from DC Market Insights, the market was valued at just under $32 billion in 2020 and is projected to reach $74.4 billion by 2025, before expanding more than fourfold to an estimated $332 billion by 2035.
The report identifies colocation as one of the most strategically important sectors underpinning the global digital economy, serving as the physical foundation for cloud computing, AI, edge applications, and the increasingly data-driven enterprise landscape.
Colocation has evolved from a niche infrastructure option to a central pillar of enterprise and hyperscale strategy. By offering shared, carrier-neutral data center environments, colocation allows organizations to scale capacity quickly while avoiding the capital costs and operational overhead of building proprietary facilities. This flexibility, combined with the need for low-latency interconnections, high uptime, and regulatory compliance, has made colocation integral to how enterprises and service providers deploy digital infrastructure. The DC Market Insights report notes a compound annual growth rate of 16.05% through 2035 - one of the highest sustained growth rates of any segment in the IT infrastructure industry.
The report attributes this expansion to several reinforcing trends. Enterprises are increasingly seeking scalable, cost-efficient IT infrastructure as part of their digital transformation strategies. Moving workloads from traditional on-premises data centers to colocation facilities reduces capital expenditure and provides greater operational agility. Many organizations now use colocation as the backbone of hybrid IT setups that combine private and public cloud services. These facilities also support disaster recovery and business continuity strategies, ensuring critical workloads remain accessible even during disruptions. For investors, colocation offers long-term stability through recurring revenue models and multi-year service contracts.
Connectivity Platforms
A key growth driver is the deepening integration of cloud computing and colocation services. Across industries such as manufacturing, finance, healthcare, and retail, organizations are deploying distributed applications that rely on both public cloud and localized data infrastructure. The combination enables hybrid cloud operations optimized for performance and compliance. As artificial intelligence, Internet of Things (IoT), and data analytics workloads expand, the need for low-latency connectivity to processing centers has intensified. This has made colocation a preferred environment for enterprises seeking to run compute-intensive applications without ceding full control to hyperscalers.
Providers are responding with advanced connectivity platforms that bridge data centers, cloud providers, and networks. Digital Realty, for instance, expanded its ServiceFabric Connect technology to 61 locations across 32 metropolitan areas, enabling direct hybrid IT interconnection with leading network operators such as Zayo. This type of service illustrates how colocation is becoming a gateway to global cloud ecosystems rather than a competitor to them.
Another factor reshaping the market is the surge in data localization and edge computing demand. As governments tighten regulations around where data must reside, enterprises are seeking regionalized infrastructure options. Edge data centers - smaller facilities positioned closer to users - enable real-time processing for latency-sensitive applications such as autonomous vehicles, industrial IoT, and immersive media. The report cites growing investments in edge-based colocation services across Tier 2 and Tier 3 cities, particularly in Asia and Africa. In India, NES Data announced plans to expand capacity beyond 100 megawatts by 2027, following the 2024 launch of a 5 MW edge facility in Pune. These projects reflect a broader push to decentralize infrastructure while maintaining compliance with national data laws.
Technology innovation also plays a decisive role. Colocation providers are adopting automation, AI, and advanced monitoring to optimize performance, enhance energy efficiency, and streamline maintenance. Digital twin technologies, intelligent power management, and predictive analytics now form part of standard operations for major providers. Sustainability has become both a technical and competitive imperative: operators are integrating renewable energy, next-generation cooling, and carbon-efficient design to meet corporate ESG goals and regulatory requirements. Facilities with strong sustainability credentials are now favored by enterprises and institutional investors alike.
Hybrid Architectures, Regional Growth Leaders
Among the most visible trends identified in the report is the strategic expansion of hyperscale and hybrid infrastructure networks. Cloud giants increasingly partner with colocation providers to accelerate deployment timelines and improve global reach. These alliances allow hyperscalers to position capacity near key enterprise markets, reducing latency and improving redundancy. Hybrid architectures - blending private and public environments - are gaining traction as enterprises seek to balance control with scalability. This hybridization not only supports AI-driven workloads but also broadens the addressable market for colocation services, as enterprises prefer flexible infrastructure that can be tailored to specific performance and compliance needs.
The report also underscores the geographic diversification of colocation investments. North America currently holds the largest market share, accounting for 38.5 percent of global activity, with a projected CAGR of 15.98 percent through 2035. Its dominance is underpinned by a mature hyperscale ecosystem, robust connectivity infrastructure, and regulatory stability. The United States remains the focal point for hyperscale growth, while Canada and Mexico are expanding through renewable energy integration and policy incentives. The report highlights Equinix’s DC12 data center in Ashburn, Virginia - located in “Data Center Alley” - as an example of North America’s unparalleled interconnection density, featuring more than 37,000 cross-connects.
Europe holds roughly 27.6 percent of global share and continues to expand at a CAGR of 15.32 percent. The region’s growth is driven by strict data protection regulations, energy-efficient design standards, and the proliferation of sustainability-driven investment models. The United Kingdom, Germany, and France lead with dense colocation ecosystems supporting both hyperscale and enterprise customers. Data sovereignty requirements and commitments to renewable energy are shaping the region’s long-term infrastructure strategies. For investors, Europe offers predictable returns and a stable regulatory environment, making it an attractive counterpart to the high-growth but volatile markets of Asia.
Asia Pacific, with an expected CAGR of 17.33 percent, represents the fastest-growing region. China, India, Japan, and Australia anchor this expansion through heavy investment in cloud, connectivity, and edge infrastructure. A rapidly digitizing enterprise base, favorable government policies, and a surge in e-commerce and fintech activity are driving regional demand. Operators are expanding into Tier 2 cities to meet local compliance and latency needs, while major projects such as AirTrunk’s TOK2 facility in Tokyo - one of Japan’s largest hyperscale developments at 110 MW capacity and a power usage effectiveness (PUE) of 1.15 - exemplify the region’s energy-efficient approach.
Latin America’s colocation market, valued at $1.58 billion in 2020 and projected to reach $14.7 billion by 2035, is also gaining traction, particularly in Brazil, Mexico, Chile, and Colombia. As broadband pe*******on and enterprise cloud adoption rise, governments are offering tax incentives to attract infrastructure investment. The region’s emerging role as a connectivity hub between North and South America is drawing early-stage investors looking for long-term returns.
In the Middle East, the market is accelerating through national digitalization initiatives in the United Arab Emirates and Saudi Arabia. With an estimated CAGR of 14 percent and a forecast valuation of nearly $7 billion by 2035, the region benefits from its strategic geographic position linking Asia, Africa, and Europe. Data localization laws, smart city projects, and green energy initiatives are creating new opportunities for colocation and hyperscale development. Similarly, Africa’s emerging digital economies - led by South Africa, Nigeria, Egypt, and Kenya - are witnessing early-stage investments in data center capacity. Though Africa currently accounts for just 1.5 percent of global market share, its steady CAGR of 12.66 percent indicates a growing role in global data distribution and cloud adoption.
Challenges and Strategic Outlook
Despite the strong growth trajectory, challenges remain. Rising energy costs, limited power grid capacity in developing markets, and tightening environmental regulations are placing pressure on operators. Colocation providers must balance the demand for high-density workloads with the need for sustainability and profitability. Cybersecurity and compliance complexities also pose operational hurdles, as stricter data sovereignty laws increase deployment costs and limit cross-border flexibility. Yet, these challenges are driving innovation rather than deterring expansion. Investments in AI-driven efficiency, renewable energy contracts, and adaptive cooling systems are helping operators manage costs while maintaining uptime.
The DC Market Insights report concludes that the future of colocation lies in convergence - the intersection of cloud, edge, and AI. Together, these forces will redefine how and where data is processed, stored, and transmitted. As AI workloads scale exponentially, colocation’s ability to provide power-dense, interconnected environments will become indispensable. Edge deployments will bring computation closer to users, while cloud integration will ensure global scalability. For enterprises, this hybrid infrastructure offers a path toward digital competitiveness without the constraints of traditional IT. For investors, it represents a long-term growth opportunity anchored in one of the most essential elements of the digital economy: the physical backbone of global data exchange.
By 2035, the data center colocation market will be not only a $332 billion industry but also the connective tissue linking every major technological trend of the next decade - from AI and IoT to 5G, smart cities, and sustainable computing. What began as a cost-saving alternative to on-premises data centers has evolved into a strategic cornerstone for the world’s digital infrastructure, powering the next era of intelligent, decentralized, and energy-conscious computing.
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