Welcome to an insightful conversation with Chloe Maraina, our Business Intelligence expert with a deep passion for crafting compelling visual stories through big data analysis. With her extensive background in data science and a forward-thinking perspective on data management, Chloe is uniquely positioned to shed light on the pressing crisis in colocation space within data centers. In this interview, we dive into the root causes of the shortage, the impact on enterprises, skyrocketing costs, construction challenges, and potential strategies to navigate this complex landscape. Join us as we explore how businesses can adapt to these constraints and what the future might hold for data center infrastructure.
How did we get to this point of such a severe shortage of colocation space in data centers, and what’s fueling this crisis?
The shortage of colocation space has been building for a while, driven by an unprecedented surge in demand for compute power. A significant factor is the explosion of AI projects, which require massive amounts of processing capacity and specialized hardware. Beyond AI, though, we’re seeing enterprises across the board needing more raw compute power for everything from day-to-day operations to large-scale digital transformations. Another key player in this crunch is the hyperscalers—major cloud providers—who are snapping up huge chunks of available space, often pre-leasing entire facilities before they’re even built. This leaves smaller enterprises scrambling for whatever is left, which isn’t much.
Can you paint a picture of just how tight the market is right now in terms of vacancy rates for colocation space?
It’s incredibly tight. We’re talking about a vacancy rate as low as 2.6% across North America at the end of 2024, which is historically unprecedented. In key markets like Northern Virginia, it’s even worse—down to just 0.76%. Other major hubs like Phoenix and Chicago aren’t much better, with rates hovering around 1.7% and 3.1%, respectively. Despite record levels of new construction, the demand is simply outpacing supply at an astonishing rate. Available blocks of space larger than 5 MW are almost nonexistent, and any second-generation space that opens up gets re-leased in weeks.
What kind of impact is this shortage having on enterprises trying to grow or innovate?
Enterprises are feeling the pinch in a big way. IT executives are facing major roadblocks when they can’t secure space for their servers, which delays critical initiatives like digital transformations or AI rollouts. Imagine having to tell your leadership team that a game-changing project is on hold because there’s nowhere to house the infrastructure—that’s a tough conversation. Certain industries, especially those with heavy regulatory or privacy constraints that prevent them from using public cloud options, are particularly hard-hit. The lack of space is forcing tough choices about prioritizing projects or rethinking entire IT strategies.
Let’s touch on the financial side—how are rising costs for colocation space affecting businesses?
Costs are skyrocketing in many markets. In places like Northern Virginia and Chicago, we’ve seen price increases of over 17% year-over-year as of early 2025. Even in less extreme markets, global pricing is up by more than 3%. For companies renewing leases, the sticker shock is real—prices have been climbing by double digits annually for the past few years, a stark contrast to the oversupply and dropping costs we saw around 2015-2020. This is putting immense pressure on IT budgets, forcing teams to reallocate funds or scale back ambitions just to keep the lights on.
What are some of the biggest obstacles in building new data centers to alleviate this shortage?
One of the biggest hurdles is power availability. Securing enough electricity for a new data center is often the first and hardest step. The power demands have grown exponentially, especially with AI workloads and high-powered GPUs—rack densities have more than doubled in just a couple of years, from 8 kW to 17 kW on average, with some setups needing up to 120 kW. Beyond power, there are other bottlenecks like land scarcity in prime locations and navigating permitting processes, which can drag on for months or even years. It’s a complex puzzle that slows down new supply despite the urgent need.
What strategies can enterprises adopt to navigate this colocation crisis and secure the capacity they need?
Enterprises need to get proactive and plan far ahead—think at least three years out. This means bringing all stakeholders together, from business units to procurement, to map out future needs comprehensively. Flexibility is also key; if a company can’t get a large block of space in one location, they might need to piece together smaller chunks across multiple sites, even if that adds complexity. Other options include leveraging stranded power in existing facilities, exploring modular data centers or powered shells for quicker deployment, and, where possible, shifting less sensitive workloads to the public cloud. Speed in decision-making is critical—having processes to sign agreements quickly can make all the difference.
Looking ahead, what is your forecast for the future of colocation space and data center capacity over the next decade?
I believe we’re in for a sustained period of tight supply, especially as demand for data center capacity is projected to grow by 19-22% annually through 2030. AI and other emerging technologies will continue to drive this need, and while construction will ramp up, power constraints and other bottlenecks will likely keep supply lagging behind. We might see more innovative solutions, like decentralized data centers or greater adoption of modular builds, to address the crunch. For enterprises, the key will be adaptability—those who can pivot to hybrid models or invest in long-term planning will be better positioned to weather the storm. I expect the industry to evolve rapidly, but it won’t be an easy fix.
