Colocation
A data centre model in which an operator provides space, power, cooling and connectivity to customers who install their own servers. Ranges from retail (a few racks) to wholesale (whole halls).
How it works
In colocation the data centre operator owns or leases the building and provides power, cooling, physical security and connectivity, while customers install their own servers and network equipment. Revenue comes from rent for space, power charges and cross-connect fees. Colocation is commonly split into retail (racks and cages for many customers) and wholesale (whole halls or buildings for a few large tenants).
In GPU and data centre deals
Colocation revenue is the cash flow behind most data centre debt: construction loans, term loans, securitisations and CMBS. Lenders separate contracted rent from power pass-through charges, look at tenant concentration and credit quality, and check renewal history. For GPU deployments a neocloud is often the colocation customer, so the same building can support two financings: the landlord's property debt and the neocloud's GPU debt.
What gets negotiated
- Length of the committed term and renewal options
- How power costs are passed through and who bears price changes
- Service level commitments and the credits or termination rights behind them
- Landlord's lien, access rights and how GPU lenders reach their collateral in the building
How it works in a deal
In colocation the operator owns and runs the building and sells space, power and cooling to customers who bring their own equipment. Lenders look at contracted revenue, power costs passed through to customers and renewal rates.
Example. See how colocation compares with build-to-suit, where one tenant takes a whole building on a long lease. Colocation or build-to-suit guide →
For in-house counsel
Colocation in the filed documents
Where the term turns up in filed contracts and what is market, for the lender’s or the borrower’s side. Previews are open; the full text is free with InfraCompute Weekly.
- Contract library: GPU lenders in a colocation facilityCan the GPU owner pledge the contract, and can its lenders get in to take the servers?
- Checklist: colocation and landlord direct agreementThe terms lenders usually need from the data centre provider when financed equipment sits in a third party's building, and the…
- What’s market: Customer step-in to the supplier's financingCan the customer keep paying the supplier's financing if the supplier fails?
- The legal desk for in-house counselContract library, issues lists, checklists and English law notes.
Related terms
Explanatory definition, not a statement that a particular transaction contains this term or a substitute for its contractual definition.
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