Cheap Colocation: A Comprehensive Guide
Colocation is an excellent option for businesses that want to reduce IT infrastructure costs and improve reliability. Not all colocation options are priced the same, however. While several factors drive pricing, including the cost of power, real estate, and demand in the market, there are several tips that businesses can use to find cheap colocation options.
Data center pricing is increasing, with the cost of wholesale space increasing by 14.5% in 2022. This makes finding affordable colocation options even more important than ever. This post will discuss how to find the cheapest colocation options that still meet your technical requirements.
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Primary Drivers for Cheap Colocation
Before we find out how to find cheap colocation, it’s essential to understand the price drivers for colocation services. The primary drivers for pricing include:
The Cost of Power
Power represents up to 70% of data center operating costs. Energy pricing is a fixed cost in their business model. Their electricity expenses are included into your colocation quote.
The cost of electricity can vary depending on the site and location. Washington State offers power as low as $0.05 per kilowatt hour (kWh), while Rhode Island costs as much as $0.15 per kWh (3x more!). This leads to significant differences in colocation pricing by market.
According to Cushman & Wakefield, Montreal, Dallas, Austin, Salt Lake City, Northern Virginia, and Portland were the North American cities with the lowest power costs. Boston, Los Angeles, and New York / New Jersey were the most expensive.
The Price of Real Estate
The cost of real estate also impacts the cost of colocation. Data centers in areas with high real estate and development costs generally charge more than those in less expensive areas.
Atlanta, Columbus, Denver, and Salt Lake City are all cities with affordable, abundant land. Silicon Valley, Los Angeles, New York City, and Boston are at the other end of the spectrum, with high property costs and limited land for development.
Market Supply and Demand
As with any market, the law of supply and demand also applies to a colocation facility. The cost will be higher if there is a high demand for colocation space or low inventory.
The Silicon Valley market ended the first half of 2022 with a data center vacancy rate of only 1.3%, according to CBRE. Rental rates for 250 kW opportunities ranged between $150 to $175 per kW.
Vacancy in the New York City area was 9%. Partially due to more available supply, rates in New York were much lower, at $125 to $135 per kW.
Tips For Finding Cheap Colocation
Now that we’ve discussed some factors that affect colocation pricing let’s take a look at some tips for locating cheap colocation options:
Be Flexible on Location
As we’ve seen, many fixed costs are included in the price of colocation that are outside the provider’s control. When you can be flexible on the location of your data center, you will get a much better deal.
If you are in San Diego or Los Angeles, consider a Salt Lake City or Phoenix data center. If you are in Chicago, consider Columbus, OH. In addition to cost, you will also gain some disaster recovery benefits by locating your data center away from your corporate office.
Businesses should compare prices before choosing a colocation provider. We recommend getting at least three bids. Telecom agents like Brightlio will save you time by gathering this info. Providers may offer different prices depending on their services, location, and other factors. Therefore, businesses must compare prices and features to ensure they get the best deal.
Businesses should also consider the quality of service and security when comparing prices. For example, a provider offering lower prices but with a history of downtime or security breaches may not be the best option for businesses. Some providers also include support or additional power options like redundant power and complimentary UPS units. Therefore, companies must balance cost with quality when choosing a colocation provider.
Negotiate with Providers
Another effective way to reduce colocation costs is to negotiate with providers. Providers may offer discounts or other incentives to win your business, especially if you are a new customer.
Customers who sign up for longer terms (three to five years) often get better deals than month-to-month or annual contracts. You can also get a better deal by bundling more services (bandwidth, cloud, backup / DR, dedicated servers, managed services, remote hands support).
Finally, always remember the power of the end of the month, quarter, or fiscal year. Many colocation providers are publicly traded or backed by venture capital. They have a lot of pressure to close the month strong. You will often find they have more room to negotiate when they are trying to make their financial targets at the end of the month.
Consider Partial Rack Colocation Options
One of the most effective ways to reduce colocation costs is to consider partial rack colocation options. Partial rack colocation options include 1U, 2U, quarter, and half rack options. These options allow businesses to rent a smaller amount of space in a data center, which can significantly reduce the cost of colocation. For instance, a small business that only needs to host one or two servers can rent only the space they need rather than a full cabinet.
Remember, your equipment will be housed in the same rack as other clients in this scenario. This makes expansion difficult and also presents privacy and security concerns. If you require greater security, you may need a lockable cabinet.
Ten Cities For Cheap Colocation
We’ve learned that some markets are cheaper than others when it comes to data center services. Here are ten cities where you will find more affordable colocation options.
Atlanta had the largest increase in data center capacity in 2022, boosting it to the 6th largest data center market in the USA. It is also a top-five market in terms of access to bandwidth. The cost of real estate and power in Atlanta is relatively low compared to other Tier 1 cities, making it an attractive location for colocation.
Dallas ranks as the most affordable market for real estate for Tier-1 US data center markets. With power priced at $0.04 to $0.06 per kWh, it also offers one of the lowest power rates. Additionally, the city’s central location and access to major fiber networks make it ideal for businesses requiring secure, reliable and cost-effective bandwidth.
Indianapolis is a growing market for data centers and offers lower colocation costs compared to other Tier 1 and Tier 2 cities. According to a report by JLL, Indianapolis is listed as the 7th most affordable data center market in North America. The city’s central location and favorable tax incentives provide additional value.
Kansas City is a developing data center market that offers lower colocation costs than other Tier 1 and Tier 2 cities. According to a report by Cushman & Wakefield, Kansas City ranks as North America’s 11th most affordable data center market. The city’s low cost of power and favorable tax incentives make it an attractive option for businesses.
Las Vegas is known for its low cost of living and business-friendly environment. The cost of colocation in Las Vegas is also relatively low compared to other cities. The city’s location in the western US provides easy access to major cities like Los Angeles and San Francisco.
Electricity pricing in Phoenix is $0.062, compared to $0.11 in Silicon Valley, representing 50% savings in power. Additionally, the Arizona Computer Data Center Program also allows tenants to have sales and use taxes abated for technology purchases. Throw in affordable land and a low-risk natural disaster profile, and you have an excellent location for data center services.
Portland is a popular location for businesses that prioritize sustainability. The favorable climate helps keep data centers cool, and facilities use cost-saving ambient cooling technologies. Average electricity rates of $0.06 per kWh are also much lower than the national average of $0.12. This makes Portland an affordable location for colocation services that helps meet corporate sustainability goals.
Nashville is a growing market for data centers and offers lower colocation costs compared to other Tier 1 and Tier 2 cities. Data Center Frontier picked Nashville as the US’s 8th most affordable data center market. Affordable labor and land prices are key drivers of favorable pricing conditions.
Pittsburgh is another Tier 2 city offering lower colocation costs than Tier 1 cities. According to a report by JLL, Pittsburgh ranks as the 9th most affordable data center market in North America. Pennsylvania also launched incentives, including sales and use tax. These are expected to entice more data center supply to the region.
Salt Lake City
Salt Lake City is considered one of the “best TCO markets in the US.” According to a report by Cushman & Wakefield, Salt Lake City is the 4th most affordable data center market in North America. SLC also enjoys extensive fiber infrastructure, a well-educated population, and a low risk of natural disasters.
While the price of colocation services continues to increase, finding an affordable solution is still possible. Being flexible on the market, rigorously comparing prices, negotiating with competitors, and exploring smaller footprints are all ways to save money.
Also, keep in mind the cheapest option may not be the best. Keeping your critical business applications online and running is the primary purpose of your colo. You also want to ensure the provider has staff you are comfortable with, has the bandwidth options you need, and is secure. You should pick the provider with the best value that also delivers on the items above.
Brightlio Delivers Affordable Colocation Solutions
At Brightlio, we understand that finding the right colocation solution for your company can be time-consuming. That’s why we support our clients in navigating the colocation market and finding affordable, secure options that meet their needs. As a telecom broker, we work with a global network of trusted providers to offer a wide range of choices at competitive pricing.
Whether you need a partial colocation rack, full rack, private cage, or suite, Brightlio can help you find a service that fits your budget. Additionally, we offer network connectivity, cloud, unified communications, dedicated servers, and advisory services, delivering holistic solutions for your technology needs. We are happy to answer any questions you may have.
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