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LONDON (June 2, 2020) — Despite the economic pressure exerted by the COVID-19 pandemic, the colocation service market is expected to continue to expand in 2020, although at a lower rate than previously forecasted.

Global colocation revenue is expected to rise by 6.2 percent this year, compared to the previous forecast of 9.2 percent, according to Omdia. Revenue is expected to grow at a 7.1 percent compound annual growth rate (CAGR) from 2020 through 2024. Worldwide colocation service revenue is forecast to rise to $40.3 billion in 2024, up from $28.6 billion in 2019, as reported by Omdia’s Cloud and Colocation Services for IT Infrastructure and Applications Market Tracker.

Many colocation service providers indicate they have seen an uptick in customer demand as a result of the pandemic. Employees and students who are not required to be out-and-about have had to shift to working from home, driving demand for interconnection and—in turn—the need for more colocation space and information technology (IT) equipment to handle the demand.

Many public colocation companies have said that requests for rent concessions have been limited so far, and their exposure to high-risk enterprises like travel, hospitality, and energy is low. Many have adjusted their 2020 revenue growth guidance down for 2020, although revenue growth remains up over 2019. The downward guidance adjustments are based primarily on the assumptions that some rent concessions will become a reality later in 2020, some customer deployments may be postponed, and colocation service providers will continue to incur extra pandemic related expenses as long as the pressure keeps up.

“The silver lining for colocation service providers is that the industry is very recession-resistant, with the business weathering the 2008 financial crisis rather well,” said Alan Howard, principal analyst, cloud and data center research practice, at Omdia. “Colo providers should remain in pretty good shape because they cater to larger businesses and high-credit tenants, which represent a more stable customer base. Furthermore, colocation facilities are benefitting from the fact that they don’t just link businesses; they also connect the millions of at-home workers and learners to critical content and services—including the cloud—which allow much of the world to keep operating despite the pandemic restrictions.”

Other developments reported by Omdia’s Cloud and Colocation Services for IT Infrastructure and Applications Market Tracker include:

  • The CAGR from 2019 through 2024 for physical facilities is expected to total 6.6 percent.

  • The CAGR for interconnection during the same period will total 12.1 percent. By 2024, Omdia expects interconnect to grow to represent 12 percent of colocation market revenue, up from 9.5 percent for 2019.

 

Figure: Colocation service forecast by segmentColocation service forecast by segment

 

Interconnection share separates the herd
Revenue growth for Interconnection is outpacing physical facility power and space revenue growth, reflecting a shift in customer focus to require multiple options for low-latency connectivity. Now more than ever before, interconnection is an important service requirement for customers, supporting global network low-latency access to the multi-cloud, edge locations, customers and business partners.

Looking at the top-five providers by interconnection revenue share, Equinix leads with a commanding 32.8 percent revenue share at $894 million, followed by Digital Realty at 9.7 percent, China Telecom at 3.7 percent, Switch at 3 percent, and Coresite and Cyxtera tied at 2.8 percent each. Equinix had built its brand around its interconnection services long before the terms multi-cloud, edge compute, and COVID-19 pandemic entered the vocabulary.
Interconnect is an interesting piece of the revenue pie because its high margin flows to the bottom line. Installing a physical cross-connect is not terribly expensive, requires little maintenance and produces monthly recurring revenue. Virtual cross-connects don’t require any installation costs, notwithstanding the upfront cost of putting the provisioning mechanism in place. While its overall revenue contribution is relatively low compared to power and space revenue, it’s mostly a profit contribution to the bottom-line.

About Omdia
Omdia is a global technology research powerhouse, established following the merger of the research division of Informa Tech (Ovum, Heavy Reading and Tractica) and the acquired IHS Markit technology research portfolio*.

We combine the expertise of over 400 analysts across the entire technology spectrum, analyzing 150 markets publishing 3,000 research solutions, reaching over 14,000 subscribers, and covering thousands of technology, media & telecommunications companies.

Our exhaustive intelligence and deep technology expertise allow us to uncover actionable insights that help our customers connect the dots in today’s constantly evolving technology environment and empower them to improve their businesses – today and tomorrow.