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Power, Not Space: The Colocation Battleground in 2026
With pipelines pre-sold and densities rising, differentiation now hinges on time-to-power and delivery certainty.
6 Min Read
Legacy racks at 5-7 kW are giving way to AI workloads at 50-100 kW.Image: Alamy
In 2026, the colocation industry faces a defining constraint: power availability. As demand for data centers surges, success will hinge on the ability to deliver megawatts, not square footage.
Despite robust growth projections – the global colocation market is expected to grow from $104.2 billion in 2025 to $204.4 billion by 2030, at a 14.4% compound annual growth rate, according to MarketsandMarkets – unprecedented demand has triggered a supply crunch poised to reshape the sector in 2026.
Trends from 2025 underscore the severity of the imbalance. Primary market vacancy rates fell to a record 1.6% in the first half of 2025, down from 2.8% a year earlier, per CBRE's North America Data Center Trends report. During the same timeframe, the colocation vacancy rate in Northern Virginia, the world's largest colocation market, rose slightly to 0.72%, CBRE found.
The construction pipeline is already spoken for: Nearly three-quarters of the 5,242 MW currently under development across North America are pre-leased, with some commitments extending into capacity scheduled for delivery in 2027 and beyond.
Colocation’s Power Crisis
The supply-demand imbalance has driven colocation pricing to record levels. In the first half of 2025, average rates reached $184 per kilowatt per month for 250-500 kW deployments, while requirements of 10 MW or more saw pricing increase by up to 19%, according to CBRE.
The shift is evident in every client conversation, said Andrew Baffoe, Director of Cloud and Network Services at Myriad360, a global systems integrator based in New York. When enterprise customers call looking for data center capacity in 2026, the focus is no longer on rack counts or floor space. "In 2026, colocation conversations will stop being about space, ping, or how many racks you need, and [become] more about, 'How many megawatts can you deliver, when, and at what price per kW?'" Baffoe told Data Center Knowledge. "If you can find power, they will come."
"If you can find power, they will come." - Andrew Baffoe, Director of Cloud and Network Services, Myriad360
The Bifurcation of the Colocation Market
Everett Thompson views the industry splitting into two different businesses, with little overlap. As CEO of Las Vegas-based data center advisory firm Wired Real Estate Group, Thompson tracks capital flows based on a single criterion: the ability to deliver megawatts.
According to Thompson, one business type focuses on power-dense, AI-driven wholesale and customer facilities with varying densities. The other type focuses on connectivity for enterprise and network workloads that require low latency.
Legacy platforms were built around 5-7 kW racks. Modern AI workloads demand 50-100 kW. That delta has opened the door for new entrants. "Many legacy colocation platforms have under-participated in the AI and high-density cycle over the past five years, creating room for alternative providers purpose-built around power availability, scale, and delivery certainty," Thompson said.
The power crunch is also redrawing the data center map. Growth is shifting toward regions where utilities can reliably deliver capacity. "The highest growth will continue shifting away from the top 10 markets toward power-advantaged secondary and tertiary regions, driven by utility constraints, extended permitting timelines, and widening energy price differentials," Thompson explained. "Energy resources, not immediate proximity to an urban core, are now the primary site-selection driver."
"Energy resources, not immediate proximity to an urban core, are now the primary site-selection driver." - Everett Thompson, CEO, Wired Real Estate Group
GridFree AI's December 2025 launch of its South Dallas One site illustrates the trend. The Texas facility aims to deliver more than 1.5 GW within 24 months from lease signing by operating off-grid, outpacing the typical four-year timeline for traditional developments.
The Rise of Build-to-Suit Colocation
The relationship between hyperscalers and colocation providers has undergone a fundamental shift, according to Jenn Cahill, Associate Vice President at Black & Veatch, an engineering and construction firm based in Overland Park, Kan. Once focused on building their own infrastructure, cloud giants are now turning to third-party operators to lease facilities.
"Colocation is adding a build-to-suit model, with hyperscalers and neoclouds leasing entire buildings, or even entire campuses," Cahill said. "This trend reflects their aggressive growth targets and the challenge of building fast enough internally." In this context, “build-to-suit” refers to facilities tailored to a single tenant’s specifications and schedule.
"Colocation is adding a build-to-suit model, with hyperscalers and neoclouds leasing entire buildings, or even entire campuses." - Jenn Cahill, Associate Vice President, Black & Veatch
The capital commitments underscore the pivot. In November 2025, Anthropic announced a $50 billion infrastructure buildout with Fluidstack that includes a $7 billion, 15-year lease for 245 MW. A month later, Nscalesecured an $865 million agreement with WhiteFiber for 40 MW.
Challenges for Traditional Enterprise Colocation
Peter Feldman, who runs QTD Systems, a colocation provider based in New York that specializes in traditional enterprise workloads rather than AI, finds his business caught in a challenging position. Rising operational costs are squeezing margins, while customers are becoming increasingly resistant to higher prices.
"Non-AI or hyperscale colocation saw steady sales; pricing for operators held [with] maybe small upticks, but most incremental gains were countered by rapidly rising power costs," Feldman explained. "Equipment, replacement, and upgrade costs have skyrocketed due to tariffs and AI construction consuming all the equipment for new construction."
"Equipment, replacement, and upgrade costs have skyrocketed due to tariffs and AI construction consuming all the equipment for new construction." - Peter Feldman, CEO, QTD Systems
Databento CEO Christina Qi reports similar challenges from the customer side. The Salt Lake City-based market data platform operates colocation deployments across four sites. Supply chain disruptions have caused delays.
"We expect memory and storage shortages, and the raised costs, to continue at least into Q3 [2026]," Qi said. "Supply chain disruptions have also caused significant delays to large shipments of servers for us."
"We expect memory and storage shortages, and the raised costs, to continue at least into Q3 [2026].” - Christina Qi, CEO, Databento
Cloud Repatriation: An Enterprise Growth Avenue
Despite cost pressures, enterprise demand for cloud repatriation is rising as organizations reassess the economics of running workloads in the public cloud. "I was engaged by a traditional enterprise client working on a cloud-to-colo initiative, and it's an exact match to another project we worked on earlier this year," Baffoe of Myriad360 said. "I don't see cloud-first going anywhere in 2026, but I do foresee 'cloud smart' taking it over."
Similar dynamics are playing out in financial services, according to Rick Gilbody, Global Head of Sales and Marketing for Financial Markets at Transaction Network Services, a Reston, Va.-based IaaS provider. "In 2026, more and more firms will be precise about exchange colocation and seek cost-effective proximity data centers to cloud-native solutions," Gilbody said.
"In 2026, more and more firms will be precise about exchange colocation and seek cost-effective proximity data centers to cloud-native solutions." - Rick Gilbody, Global Head of Sales and Marketing for Financial Markets, Transaction Network Services
Outlook for 2026: Growth Amid Constraints
Even with persistent constraints around location, permitting, supply chains, and – most critically – power, 2026 is set to be a growth year for colocation. Growth will be driven predominantly by AI demand, but it will be gated by the ability to secure and deliver megawatts at scale, accelerate high-density designs, and diversify energy procurement strategies across power-advantaged regions.
"In 2026, we are going to see unprecedented growth in the colocation market, and that growth will be driven by AI," Baffoe said.
