Colo Vacancy Rates Near Record Low: What Can You Do?

As the demand for digital services grows exponentially, so does the need for colocation data center space. However, colocation providers are unable to keep up with this rapidly growing need resulting in limited space available for rent and skyrocketing prices.

According to CBRE, colocation rates have jumped from 14.5% in 2022 to 18.6% in 2023 to a record $163.44 per kW/month due to the restricted supply of colo space. Additionally, the vacancy rate for primary markets is at an all-time low of 3.7% with most tenants renewing leases instead of venturing out for other options.

With colocation space at a premium, do you have the tools to extract all available space, power, and cooling capacity without introducing risk?

What Is Driving Near-Record Low Colocation Vacancy Rates?

Colocation pricing is predicted to rise by double digits in 2024 due to limited power availability and other constraints. Regardless of these challenges, under-construction activity in primary markets is projected by CBRE to reach an all-time high of over 2,500 MW in 2024.

Contributing factors for low colocation vacancy rates include:

• Construction. The cost of construction remains high due to ongoing shortages of essential materials and equipment like generators, chillers, and transformers, despite improved supply chain resilience.
• Expansion. The rapid expansion of cloud computing services by major providers like AWS, Microsoft, Azure, and Google Cloud has increased the need for more colocation centers.
• Edge computing. The demand for edge computing is massively growing which requires data processing closer to the source, driving demand for colo facilities located near population centers to reduce latency and improve performance.
• Hybrid strategies. More companies are adopting a hybrid strategy of on-premises, cloud, and colocation services to optimize IT infrastructure. Colocation offers control, flexibility, and cost-effectiveness that hybrid environments fit.
• Sustainability pressure. Organizations are constantly under pressure to meet corporate sustainability goals and reduce carbon footprint which colocations can help with as they may offer more energy-efficient and green options compared to traditional on-premises data centers.
• Enhanced security. Colocation buildings tend to have enhanced physical security measures in place to protect their tenants’ data which individual companies might have trouble implementing on their own.

Challenges of Low Colocation Vacancy Rates

Data center managers are facing multiple challenges due to the colocation space shortage:

• Limited options for customers. The availability of colocation space is extremely tight and desired in the current market. Organizations are struggling with renting space and are experiencing delays in expansion and migration plans. Limited space also entails that prospective colo tenants don’t have the flexibility to be picky about space. In terms of location, configuration, power, capacity, and specific services needed, companies might have to sacrifice certain needs and wants in order to secure a lease.
• Potential impact on scalability and expansion. Insufficient amount of colo space and resources can hinder the ability of organizations to scale operations quickly in response to rising demand. This can lead to prolonged delays in providing services and potentially losing business to competitors that have more available capacity.
• Increased competition for available colo space. High demand for space and low vacancy rates is a recipe for intensified competition among colocation providers. Colocation facilities need to differentiate their services, ensure high level of client satisfaction, and strategically plan for the future to remain in the game. This dynamic also leads to increased rent prices which negatively impact customers’ budgets and financial plans. Colos end up with more leveraging power over clients resulting in less than favorable contract terms for excessive costs, or fewer included services.

Strategies for Dealing with Low Colocation Vacancy Rates

It’s important for data center teams to have strategies in place to deal with low colocation vacancy rates:

• Plan ahead. Planning for the future is critical to success within the colocation facility. As your business grows, your data center needs will reflect that, and you will need to select a colocation data center that can accommodate your expansion needs.
• Compare. Before signing a lease, you need to research multiple colocation buildings. Customers should not just agree with the first facility they come across but rather research and compare other locations, service offerings, rental prices, and terms to find what is most suitable.
• Negotiate. In order to negotiate the best deal for your business you must have a full understanding of their current and future needs from a colo provider before initiating negotiations. It can be beneficial during negotiations to know factors like your deployment’s size, contract length, and the provider’s occupancy levels. Some colocation facilities offer bundle packages comprised of rack space, power, bandwidth, extra services, etc. Clients can negotiate these bundles to secure better overall prices and services. Negotiating Service-Level Agreements (SLA) can be especially useful as they outline the provider’s promises on uptime, performance, support, and clear penalties for non-compliance.
• Optimize existing infrastructure. Make the most out of current colocation resources through efficiency initiatives that aim to maximize utilization of existing capacity.

How to Increase Utilization of Existing Capacity Without Introducing Risk

You can potentially increase the utilization of existing capacity by leveraging Data Center Infrastructure Management (DCIM) software to:

• Increase rack space and power utilization. Auto Power Budget automatically calculates an accurate power budget for each device make and model by using the actual measured load of the device running your applications in your environment. Customers report this helps them achieve up to 40% greater utilization of existing resources. What-if analysis allows you to simulate the impact of planned projects on rack space and power capacity before implementation, helping you determine whether existing capacity is sufficient or if additional resources are needed. The intelligent capacity search feature enables you to quickly find where you have available capacity for new deployments based on the model’s resource requirements. Dashboard charts provide at-a-glance insights into capacity and utilization such as Floor Space Remaining, Cabinet Space Remaining, Stranded Power Capacity Per Rack, and Available Space by Rack Unit Size. Additionally, automatically rendered cabinet elevation views enhance and simplify rack space planning.
• Consolidate servers. Ghost servers are servers in your data center environment that are physically running but not performing any useful function. DCIM software’s ghost server report can easily find your potential ghost servers so you can investigate and decommission them to free up cabinet space and power resources and reduce wasted energy.
• Implement energy efficiency measures. Upgrading to more efficient hardware reduces power consumption and electricity bills, eventually offsetting the initial investment. It also enhances performance, reliability, and overall energy efficiency. Implementing hot/cold aisle containment, which separates cold air supply from hot exhaust, increases cooling efficiency. Properly adjusting temperature and humidity setpoints by monitoring your environment and leveraging a patented ASHRAE psychrometric cooling chart helps avoid overcooling.
• Forecast capacity utilization. Leverage space, power, and data/power ports usage trend charts in DCIM software to better understand your rate of resource consumption and forecast future capacity needs. A power capacity forecast chart makes it easy to identify how many days of available capacity remain until you will need to purchase more to simplify power planning.
• Virtualize servers. By integrating with VMware, DCIM software facilitates streamlined virtual machine management. This integration enables the mapping of virtual machines to their physical hosts. Moving virtual machines to the most energy-efficient servers minimizes energy consumption.

Bringing It All Together

Colocation space rates are sky high, and businesses need to be prepared on how to deal with them while optimizing existing resources and maintaining efficiency.

It is important to understand how low vacancy rates and increased prices happened and what the best strategies are for facing them when looking for colo rental space. Data center managers should be prepared to research different options, negotiate terms, plan for expansion, and utilize existing equipment.

The optimization of current infrastructure can be simplified by leveraging a modern DCIM tool that lets provides actionable insights that enable you to get the most out of your existing space, power, cooling, and port capacity.

Want to see how Sunbird’s leading DCIM software can help you navigate low colo vacancy rates and high rental prices by getting more out of your existing resources? Get your free test drive now!