The rise of colocation Data Centres and what this means for businesses

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Digital transformation has pushed businesses into an era of relentless data growth, AI workloads, and the expectation of always-on connectivity. Data volumes are exploding, and the demand for always-on connectivity is higher than ever. Traditional on-premises facilities are struggling to keep up, and public cloud solutions often fall short when mission-critical performance and control are required.

Against this pressure, many organisations are turning to colocation data centres. These facilities offer enterprise-grade infrastructure with operational flexibility, giving businesses the performance and reliability they need - without the capital and operational burden of building and maintaining their own sites.

In this guide, we clarify the broader colocation data centre meaning for IT teams, explore the benefits they offer, and highlight how RED Engineering delivers high-performance facilities built for tomorrow’s demands.

What is a colocation data centre?

If you’re researching infrastructure options and wondering what is a colocation data centre really offering, think of it as a shared facility where multiple organisations house their IT infrastructure under one roof. Instead of building and operating their own sites, businesses rent rack space, cages, or private suites while the provider delivers essential services such as power, cooling, physical security, and network connectivity.

Colocation facilities act as central hubs, allowing direct links to cloud providers, ISPs, and other companies. This creates a connected ecosystem that’s difficult to replicate in a standalone facility.

Unlike public cloud services, colocation gives organisations full control over their hardware and software, while still providing enterprise-grade infrastructure.  On-premises data centres, in contrast, require companies to manage construction, maintenance, power, cooling, and security themselves.

Service options range from basic rack space to fully managed setups, including remote hands, equipment monitoring, and network management. Some facilities offer private cages for extra security, while others have shared racks for smaller setups.

Colocation works particularly well for organisations that need predictable performance, regulatory compliance, or hybrid cloud strategies. It also makes it easier for businesses to expand quickly into new regions without building local infrastructure.

Business advantages of colocation

What is a colocation data centre actually offering that on-premises facilities can’t? The answer lies in a range of business benefits, from predictable costs and easy scalability to enterprise-grade security and connectivity.

Cost efficiency

Colocation removes the need to spend millions on building and maintaining a data centre. Businesses pay predictable monthly fees that reflect their actual usage, leaving more money for essential business work.

Costs for power, cooling, security, and general maintenance are shared across multiple tenants. This means growing organisations can access high-quality infrastructure at a fraction of the cost it would take to build on their own.

Scalability and flexibility

Colocation facilities are designed for rapid expansion. Adding rack space, power, or connectivity usually takes weeks rather than months. This supports businesses experiencing growth or seasonal IT demand fluctuations.

Contracts are flexible, allowing businesses to scale up during peak demand and scale down when demand drops. This avoids wasted investment and ensures resources match your needs.

Advanced infrastructure and connectivity

Modern colocation facilities offer infrastructure that rivals or exceeds what most organisations could build independently. Colocation centres provide reliable, enterprise-level infrastructure. Redundant power systems, backup generators, UPS units, and efficient cooling keep equipment running continuously, even under high-density workloads.

Many facilities are carrier-neutral, letting businesses connect directly to multiple internet providers, cloud platforms, and other companies. This improves performance, reduces latency, and supports hybrid cloud setups.

Compliance and security

Colocation providers handle compliance with standards such as ISO 27001, SOC 2, PCI DSS, and HIPAA, saving individual companies the cost and effort of achieving these themselves.

Physical security includes 24/7 monitoring, biometric access, CCTV, and on-site staff, backed up by strong cybersecurity measures. Together, these safeguards provide a level of protection most organisations would struggle to achieve independently.

Drawbacks

Colocation won’t suit every business. For smaller setups, monthly running costs can work out higher than using public cloud - especially once you factor in power, cross-connects, and any managed services. Unlike the cloud, where you only pay for what you use, colocation bills keep coming whether your racks are running at full capacity or not.

You’ll also need in-house IT skills. Your team is still responsible for hardware upgrades, software updates, monitoring, and fixing issues when they arise. If that expertise isn’t available, cloud or managed hosting may be a better fit.

Location is another factor to think about. If the data centre is far from your offices, hands-on work and emergency fixes can be harder to deal with. Remote tools and provider support help, but some situations still call for an in-person visit.

Finally, contracts matter. Long commitments can tie you into deals that don’t suit future needs, and exit fees can be steep. Make sure you understand power allocation, connection charges, and how easily you can scale before signing anything.

Global and regional market trends

The colocation market is expanding rapidly, with analysts projecting annual growth of more than 16% through 2030. The global market is expected to reach around $165 billion by 2030, as rising data volumes, AI workloads, and demand for scalable and connected infrastructure increase.

Several factors are driving this growth. Organisations are handling more digital information than ever, including data from connected devices and cloud applications. They need high-performance, AI-ready infrastructure, efficient operations, and solutions that meet regulatory requirements.

Regionally, the picture varies. The UK remains one of Europe’s fastest-growing data-centre hubs. Grand View Research projects the UK colocation market to rise to roughly £9 billion by 2030, up from around £3.2 billion in 2024, a CAGR of around 19%. 

London continues to attract the majority of new deployments, driven by hyperscale cloud providers and AI workloads that require dense, high-performance facilities. Developers are increasingly building “fully fitted” centres to meet the demands of GPU-heavy clusters.

In North America, hubs such as Northern Virginia and Dallas lead demand thanks to cloud adoption, cost efficiency, and strong network connectivity. Europe is also investing heavily in edge data centres to improve performance and meet local compliance needs, while Asia-Pacific, particularly Singapore, Tokyo, Hong Kong, and Sydney, is experiencing rapid growth driven by urbanisation and digital expansion.

But growth faces hurdles: grid-capacity constraints could push electricity demand in the UK to 30–71 TWh by 2050, while stricter sustainability requirements are making planning approvals more complex.

Across the Asia-Pacific, similar constraints are emerging. Grid capacity limits in countries such as India and Vietnam, combined with ageing infrastructure in Singapore and Australia, are creating hurdles for new developments. Policy changes and infrastructure gaps add extra challenges.

AI’s impact on colocation data centres

Artificial intelligence is changing how colocation facilities are designed and operated. AI workloads need far more computing power than standard servers, with GPU-heavy racks consuming 50-100 kW compared to 5-15 kW for standard setups. This puts new demands on power, cooling, and space that colocation providers must meet.

The high power demands of AI workloads mean advanced cooling is now essential. Direct liquid cooling, rear-door heat exchangers, and immersion systems are increasingly being utilised to manage the heat from AI systems. Integrating these solutions often requires changes to existing infrastructure, including extra plumbing, pumps, and heat-rejection equipment.

Networking and storage also need upgrading. AI workloads rely on ultra-fast, low-latency connections and massive datasets, so high-speed interconnects and high-performance storage systems are critical.

AI comes with higher demands, but it’s also making operations more efficient. Predictive maintenance spots potential equipment issues before they affect customers, while machine learning optimises cooling in real time - adjusting airflow and temperatures to match actual heat loads. Automated capacity management helps providers track space, power, and cooling usage, making planning and customer onboarding more efficient.

These AI-driven improvements cut costs, boost reliability, and benefit all tenants - not just those running AI workloads.

How RED delivers high-performance colocation facilities

RED designs colocation facilities built for today and ready for tomorrow. Every element, power, cooling, network, and building system is integrated from the start - creating environments that are reliable, efficient, and scalable.

Efficiency is built in. Our advanced cooling, smart airflow, and intelligent power distribution cut energy use and operating costs, while supporting sustainability targets.

Our modular approach lets facilities grow as demand rises. Modular, phased builds match investment to demand, and prefabricated elements cut construction time without compromising on quality.

Keeping operations running comes first. Redundant power, multiple power sources, backup generation, and full monitoring ensure uptime, while our cooling systems handle both standard workloads and high-density AI racks.

Take Project Haryono in Indonesia. The two-phase development, with an IX building and a Hyperscale building, delivered a high-capacity colocation environment in record time. It offers 36 MW IT load, meets Tier III reliability standards, and achieves a PUE around 1.5 - supporting both enterprise and AI workloads.

Whether you’re upgrading existing facilities, expanding into new regions, or building from scratch, RED brings the technical know-how to deliver colocation facilities that work smarter, last longer, and give operators a real advantage.

Looking to create a colocation facility built to last? Contact RED Engineering today and let our team guide you from design to delivery, helping ensure your data centre is efficient, resilient, and future-ready.