The colocation space crisis is intensifying, causing significant challenges for enterprises needing to expand their IT infrastructure. Companies aiming to support digital transformation projects, launch AI initiatives, or simply manage growing demand for computing power are confronting unprecedented difficulties in securing colocation space. The vacancy rate for such spaces has plummeted, leading to year-over-year price increases of nearly 20% in certain regions.
For enterprises seeking to renew leases or acquire new colocation space, sticker shock is a likely outcome. Waiting times can extend to 18 months or longer, complicating planning for IT executives who must justify delays in critical projects to management.
To address this pressing issue, IT leaders must initiate planning processes without delay. The task isn’t straightforward; unpredictability stemming from various market dynamics, including mergers and acquisitions, necessitates a strategic approach to forecasting data center needs. Many companies are eager to capitalize on the AI boom, yet struggle with defining specific workloads and resource planning.
The current environment is characterized by record demand coupled with dwindling availability. According to Andrew Batson from JLL, the colocation vacancy rate dipped to a mere 2.6%, even with considerable construction investments aimed at adding capacity. Minimally available data center spaces larger than 5 MW are becoming scarce, with almost 6.5 GW under construction, most of which is already pre-leased.
Demand factors are multifold. While AI workloads certainly contribute—representing an estimated 20% of data center demands—they are not the sole cause of the tight market. Enterprises require more computing power for various applications, and hyperscalers are rapidly acquiring colocation spaces, exacerbating shortages for traditional enterprises. These hyperscalers pre-lease entire data centers to meet their growing demands, limiting options for smaller enterprises.
Constraining factors also extend beyond market demand. Power availability is a significant barrier for new constructions. Data centers today require much more power, with average densities escalating from around 8 kW to over 17 kW per rack within two years. Projections indicate a potential supply deficit in global data center capacity, which could increase yearly by 19% to 22% through 2030.
Enterprises face two major cost scenarios: renewing existing leases and negotiating new ones. Companies whose leases were signed years ago are in for steep price hikes, as costs have surged annually. The latest data shows a modest overall increase in global data center pricing, with some regions experiencing spikes of over 17%.
In light of these challenges, organizations need to accelerate their planning and align all internal stakeholders to develop a comprehensive roadmap for future computing and storage needs. They must also be agile enough to navigate the constraints of colocation spaces. Some strategies include:
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Leveraging Stranded Power: For organizations that own data centers with unused space, there may be opportunities to utilize this power for enhanced efficiency.
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Exploring Alternative Locations: Companies should remain flexible regarding where they seek colocation space. They might not find 5 MW in one location, but piecing together smaller contracts in multiple places can be effective.
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Utilizing Public Cloud: If colocation needs aren’t met, reallocating some workloads to the public cloud may help, albeit with potential cost implications.
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Constructing Powered Shells: Organizations can build or utilize modular data center facilities that provide necessary infrastructure while waiting for additional colocation space.
These opportunities highlight that while the current colocation landscape poses challenges, proactive planning and flexibility can enable enterprises to effectively manage their computing needs now and in the future.
