Understanding Multi Tenant & Colocation Data Centers

Multi-tenant data centers are typically data centers operated by third parties for the benefit of multiple enterprise tenants. They are often referred to as colocation data centers, however, in some instances wholesale data centers will operate a single-client data center on behalf of a large clients.

There are two main types of multi-tenant data centers you should know about:

  1. Wholesale Colocation Data Center
  2. Retail Colocation Data Center


What is a Wholesale Colocation Data Center?

A wholesale data center is a commercial data center that sells typically warehouse-scale or large sub-components of physical space to a small number of large enterprises. The data center operator is responsible for the physical building, access to sufficient utilities (and specifically power and telecommunications), and the maintenance of the physical space and associated utilities including security. The data center operator is not responsible for any hardware or the software running on that hardware.

What is a Retail Colocation Data Center?

A colocation data center is variant of a wholesale data center but with a greater number of tenants. Some analysts also further differentiate managed hosting data centers and shared hosting data centers in this category. Managed hosting data centers are a form of colocation data center where the data center operator also manages and/or rents compute, network and storage infrastructure for customers. In some instances, they may provide added value services. Shared hosting data centers are similar to managed hosting data centers however clients will share services at a higher level. These data centers are commonly used for website hosting and may be used by businesses and consumers.

Structure Research (2016) suggests that colocation market was valued at US$33.59 bn in 2016 with wholesale colocation accounting for approximately 25% of the market (US$8.3 bn) and retail colocation accounting for the remaining 75% (US$25.27 bn). Analysts project the five-year growth rates for the global wholesale and retail colocation market at 13% – 15.7% (Technavio, 2016; Structure Research, 2016). As can be seen from Figure 1, North America at 41.7% of market share was the largest market by revenue in 2016 followed by Asia Pacific (21.5%).

Colocation Data Centers


What is Driving Colocation Data Centers?

The main driver for colocation data centers is the significant cost savings when compared to building, operating and maintaining an enterprise data center. As discussed in the previous section, Uptime Institute’s 2015 Data Center Survey reports that colocation data center investment increases of up to 74%. 365 Data Centers (2016) compare the cost of building and operating an enterprise data center and renting space in a colocation data center. They find, unsurprisingly, a massive drop in upfront capital expenditure combined with significant operational cost savings and potential improvements in both agility and scalability.


  • Construction
  • Core business and staffing
  • Ongoing support
  • Scalability (and utilization)
  • Shared cost structure
  • Connectivity
  • Certifications (including SSAE16 and HIPAA)

Another driver for colocation data center growth worth mentioning is disaster recovery. Even when an organization uses an enterprise data center or indeed the cloud, they may use a colocation data center for disaster recovery services. A report by 451 Research suggests that after their existing company-owned data centers, a significant proportion of respondents considered both colocation (44%) and managed hosting providers (34%) as part of their disaster recovery strategy.


Interested in learning more? Download our free 2017  Data Center Market Briefing Paper.

This market briefing provides an overview of the global data center market, segmenting the market by both datacenter type and the individual hardware components that make up a data center. It outlines the factors influencing adoption of data centers worldwide and investigates the different factors changing the dynamics of this market, drawing on publicly available desk research from industry analysis to predict where this market will be in 2020.