What is colocation hosting? A technical guide for IT professionals

So, what exactly is colocation hosting? In technical terms, it's a hosting model where an organization leases physical space in a third-party data center to house its own servers and networking hardware. This approach offers a strategic middle ground between the immense capital expenditure of building a private data center and relinquishing hardware control to a managed hosting provider.

You procure, own, and manage your entire hardware stack—servers, storage arrays, and network appliances. However, instead of deploying it in an on-premise server room with significant limitations, you install it within a purpose-built, enterprise-grade data center facility.

Defining Your Infrastructure Foundation

Consider this analogy: you're building a high-performance computing (HPC) cluster. The individual server nodes are your race cars, but you wouldn't operate them in a standard office garage. You'd require a professional facility with redundant power, precision cooling, robust physical security, and high-speed network interconnects.

Colocation provides that professional facility for your hardware. You bring the specialized servers, and the provider delivers the resilient infrastructure envelope. This model is ideal for IT teams that require direct, bare-metal access for performance tuning, deploying custom virtualization stacks like Proxmox VE, or satisfying stringent regulatory compliance mandates.

Constructing a private data center from the ground up is a monumental undertaking involving real estate acquisition, redundant power grid connections (2N), industrial-scale cooling systems, and multi-layered physical security. The capital expenditure (CapEx) is often prohibitive.

Colocation converts this financial model into a predictable operational expense (OpEx). Instead of a massive upfront investment, you pay a recurring fee for space, power, and cooling. This frees up capital while providing access to infrastructure resilience you couldn't otherwise afford. It's an efficient strategy to deploy bare metal servers or construct a private cloud using platforms like Proxmox VE.

Core Components of Colocation

The colocation model is defined by a clear demarcation of responsibilities. It enables your technical team to abstract away facility management and focus on value-driving activities: application performance, data management, and service delivery.

Here is a typical breakdown of responsibilities:

• You Provide and Manage: The entire hardware and software stack. This includes servers (e.g., Dell PowerEdge, Supermicro), storage arrays (e.g., NetApp, Pure Storage), network switches and routers (e.g., Juniper, Cisco), and firewalls. You are also responsible for the operating system, virtualization layer (hypervisor), and all application software.
• The Provider Manages: The physical data center facility. This encompasses the building, rack space, redundant power distribution (UPS and generators), precision cooling (HVAC), multi-layered physical security, fire suppression, and carrier-neutral network connectivity.

By outsourcing facility management, you inherit enterprise-grade resilience and security with defined SLAs, eliminating the overhead of maintaining critical infrastructure. This allows your sysadmins and engineers to focus on optimizing the stack—from bare metal performance tuning to hypervisor configuration—rather than responding to power outages or cooling failures.

Let's break this down even further.

Colocation Hosting At a Glance

This table provides a clear responsibility assignment matrix (RAM) for a typical colocation arrangement. It highlights the symbiotic partnership: the provider engineers the world-class facility, and you deploy your high-performance hardware within it.

As shown, you maintain full control over the logical and physical components of your IT operations. The provider is responsible for the critical, yet non-differentiating, physical infrastructure layer.

Ultimately, understanding what is colocation hosting means recognizing it as a strategic infrastructure decision. It delivers the granular hardware control of an on-premise deployment with the robust facility benefits typically associated with hyperscale cloud providers.

How Colocation Works: A Technical Breakdown

So, what does a colocation deployment look like in practice? Let's walk through the process from initial planning to a fully operational state. The process begins with a strategic assessment of your physical infrastructure requirements—calculating the total rack units (U), power draw (kW), and network port density needed for your hardware.

Once you've selected a provider and contracted for space (e.g., a single 42U rack or a private cage), the physical migration begins. Your team ships your servers, switches, firewalls, and storage arrays to the data center. From there, you or the provider's "remote hands" technicians will physically install, or "rack and stack," the equipment according to your rack elevation diagram.

The Initial Setup and Connection Process

With your hardware securely mounted, the critical connectivity work begins. The first step is power. You'll connect your hardware's power supply units (PSUs) to redundant Power Distribution Units (PDUs) within the rack. These are not standard power strips; they are intelligent PDUs that connect to the data center's A/B redundant power circuits, which are backed by massive Uninterruptible Power Supply (UPS) systems and diesel generators.

Simultaneously, you'll establish network connectivity. This involves running fiber or copper cabling from your network devices to the data center's Meet-Me Room (MMR) or designated network handoff point. In a carrier-neutral facility, you can provision cross-connects to a wide array of Internet Service Providers (ISPs), giving you complete control over network performance, redundancy, and cost.

For example, a common resilient setup involves:

1. Provisioning a 1Gbps circuit from ISP A to your primary firewall.
2. Provisioning a second 1Gbps circuit from ISP B to your secondary firewall.
3. Configuring a routing protocol like BGP to manage traffic and failover automatically.

This hybrid IT model is gaining significant traction. The colocation market, valued at around $6.47 billion in 2025, is expected to shoot up to $15.3 billion by 2032. That's a compound annual growth rate of about 13.3%. Businesses are leveraging colocation to optimize data traffic routing and maintain infrastructure flexibility. You can dig into more data on the colocation market growth to see these trends for yourself.

Infrastructure Management: The Provider's Role

The core of the partnership is this: you manage your servers' OS and applications, while the colocation provider manages the facility's critical infrastructure. This division of labor is what makes the model so effective.

This concept map provides a visual representation of how a client's private infrastructure stack integrates with the provider's foundational services.

This illustrates the symbiotic relationship: your hardware operates reliably because it is supported by the provider’s Tier III+ power, cooling, and security infrastructure.

The provider is contractually obligated via an SLA to maintain:

• Redundant Power: Maintaining A/B power feeds, UPS battery arrays, and diesel generators to ensure continuous power delivery, even during a regional grid failure.
• Precision Cooling: Operating industrial-grade HVAC and Computer Room Air Handler (CRAH) units to maintain optimal temperature and humidity levels, preventing thermal throttling and hardware failure.
• Multi-Layered Security: Implementing stringent physical security protocols, including biometric scanners, mantraps, 24/7 on-site guards, and extensive CCTV surveillance.

This is the central value proposition of colocation. You retain complete root-level control over your hardware and software—perfect for custom Proxmox VE private clouds or bare metal clusters—while the provider delivers an operational environment with uptime guarantees that are virtually impossible and cost-prohibitive to replicate in-house.

Remote Management and Hands-On Support

A critical component of any colocation service is "remote hands." Since your equipment is physically located off-site, you require on-site technical assistance for tasks that cannot be performed remotely via an IPMI or other out-of-band management interface.

With remote hands, you can issue a ticket requesting the provider's on-site technicians to perform physical tasks on your behalf. This is essential for both routine maintenance and emergency response.

Common remote hands tasks include:

1. Power Cycling Equipment: Performing a hard reboot of an unresponsive server or network device.
2. Component Swaps: Replacing a failed component, such as a hot-swappable hard drive, RAM module, or power supply.
3. Visual Verification: Checking physical status indicators (e.g., LED lights) to assist in remote troubleshooting.
4. Console Access: Connecting a crash cart or serial console cable to provide direct, low-level access to a device that is offline.

This service transforms colocation from a simple real estate lease into a true operational partnership, enabling you to manage a global infrastructure footprint from a single location.

So, What Are the Real-World Perks for Your IT Infrastructure?

Selecting an infrastructure model is a foundational decision that impacts everything from budget allocation to application performance. For organizations running high-performance systems or subject to strict regulatory oversight, understanding colocation hosting reveals significant strategic advantages over building and managing an in-house data center. The benefits extend far beyond simply leasing rack space.

The most immediate benefit is cost optimization. Building a private data center is a massive capital expense (CapEx), involving real estate, construction, and the procurement of industrial-grade power and cooling systems. Colocation converts this prohibitive upfront investment into a predictable operational expense (OpEx), freeing up capital that can be reinvested into core business initiatives.

Superior Reliability and Uptime

Colocation providers are specialists in infrastructure uptime; their business model depends on it. They engineer their facilities for extreme resilience, offering enterprise-grade Service Level Agreements (SLAs) that are difficult for most businesses to achieve independently. This reliability is built on layers of redundancy.

• Redundant Power: Facilities are designed with N+1 or 2N power redundancy. This means every critical component, from utility feeds and Uninterruptible Power Supply (UPS) systems to massive backup diesel generators, has at least one independent backup, ensuring continuous operation during power failures.
• Advanced Cooling: These are not standard office HVAC systems. Data centers use precision cooling to maintain strict temperature and humidity envelopes, preventing hardware failure and ensuring optimal performance. Like the power infrastructure, cooling systems are fully redundant.

What does this mean in practical terms? It means your bare metal servers and private cloud environments are isolated from common disruptions like local power outages or HVAC failures, ensuring service continuity for your business.

Built-in Scalability and Flexibility

As your organization grows, your infrastructure must scale with it. In an on-premise data center, scaling often involves slow and costly construction projects. Colocation offers a more agile path to growth. You can start with a partial cabinet today and seamlessly expand into a full rack or multiple cages as your needs evolve, all within the same facility.

This flexibility is critical for modern IT operations, especially when scaling resources for compute-intensive workloads like AI/ML or new cloud-native services. Market data reflects this demand; in the U.S. alone, data center colocation services were on track to be a $17.1 billion industry in 2025. This growth is driven by companies seeking robust, reliable infrastructure without the associated capital investment. You can explore more data on the U.S. colocation market to see just how many businesses are making this shift.

Robust Physical and Network Security

A top-tier data center is a purpose-built fortress designed to protect mission-critical IT assets. The security measures in a colocation facility far exceed what a typical business could implement on its own premises.

The security posture is based on a multi-layered, defense-in-depth strategy:

1. Perimeter Security: Fencing, vehicle access controls, and 24/7 surveillance of the property exterior.
2. Facility Access Control: Multi-factor authentication, including biometric scanners and key cards, verified by on-site security personnel.
3. Interior Monitoring: Comprehensive video surveillance of data halls and access corridors.
4. Rack and Cage Security: Individual locking mechanisms on server racks and secure cages to prevent unauthorized physical access to your hardware.

For example, an e-commerce company can leverage colocation to ensure its custom-configured bare metal servers have guaranteed power, cooling, and network throughput to handle traffic surges during peak events like Black Friday. This prevents outages, lost revenue, and reputational damage.

Colocation vs. Cloud vs. On-Premise Comparison

Choosing the right infrastructure model is a critical decision that impacts budget, performance, and operational agility. To understand the strategic value of colocation, it's essential to compare it against the other primary models: public cloud services (IaaS) and the traditional on-premise data center. Each model offers a different balance of control, cost, and convenience.

This comparison is not merely academic; it's a strategic exercise to align infrastructure with business objectives, whether that's deploying a high-performance Proxmox VE cluster or satisfying data sovereignty requirements.

Control and Customization

The primary differentiator is the level of control over the physical hardware.

An on-premise data center provides absolute control. Every server, cable, and cooling unit is owned and managed by you. This offers maximum freedom but also carries the maximum operational burden for maintenance, power, and security.

Colocation offers the next highest level of control. You have 100% control over your own hardware, enabling you to build specialized configurations that are impossible in the public cloud. Need a bare metal server with specific GPUs for an AI training workload or a proprietary network appliance for security? Colocation is designed for this, providing root-level access to hardware you physically own.

The public cloud abstracts the hardware layer entirely. You manage virtual machines and software-defined services, but the underlying physical servers are managed by the provider and shared among multiple tenants. This prevents deep, hardware-level tuning or the installation of non-standard equipment.

The core trade-off is this: colocation provides bare-metal control and hardware freedom, while the cloud offers operational simplicity at the expense of that granular control.

Cost Structure: CapEx vs. OpEx

The financial models for these options are fundamentally different.

An on-premise data center is a massive Capital Expenditure (CapEx). You incur significant upfront costs for construction, servers, and networking infrastructure.

Both colocation and public cloud shift this to an Operational Expenditure (OpEx) model with recurring payments.

• Colocation: You have a predictable monthly bill for space, power, and connectivity. You still have CapEx for server purchases, but you avoid the multi-million-dollar cost of a facility build-out.
• Public Cloud: This is a pure OpEx, pay-as-you-go model. While this offers excellent initial flexibility, costs can become unpredictable and expensive at scale, particularly due to data egress fees.

For many organizations, the hybrid financial model of colocation—CapEx for owned assets, OpEx for the facility—provides a balanced and predictable total cost of ownership (TCO).

Performance and Scalability

Raw performance is where hardware control becomes critical. Because colocation allows you to run dedicated bare metal servers, you can achieve performance levels that are difficult to replicate in a multi-tenant cloud environment. There is no "noisy neighbor" effect, and you can optimize network latency with direct physical connections (cross-connects) to other providers within the same facility.

Public cloud excels at on-demand scalability. Need to spin up a thousand VMs for a few hours? It's just an API call away. However, that performance is virtualized and can be inconsistent. While there's a definite distinction between the two, you can learn more about the nuances of a private cloud vs public cloud in our detailed guide.

On-premise scalability is the slowest and most capital-intensive, often requiring long procurement cycles and physical installation. Colocation offers a middle ground. You can add more servers or lease another rack within the data center's existing infrastructure, providing a much more agile growth path than expanding your own server room.

To clarify the best choice for your use case, this side-by-side comparison is invaluable.

Hosting Model Technical Comparison

This table breaks down the key operational differences that matter to sysadmins, network engineers, and IT decision-makers.

Ultimately, understanding colocation means recognizing its unique position. It blends the control and performance of an on-premise environment with the financial efficiency and resilience of a large-scale data center—a powerful compromise between the all-or-nothing approaches of public cloud and private builds.

Ideal Use Cases for Colocation

While the technical merits of colocation are clear, its strategic value becomes apparent when applied to specific, high-stakes use cases where control, performance, and security are non-negotiable.

The explosive growth in the colocation market is driven by these demanding applications. As technologies like AI and high-performance computing push traditional infrastructure to its limits, the need for specialized facilities is soaring. Projections show the global data center colocation market rocketing from $104.2 billion in 2025 to $204.4 billion by 2030. You can dig into the full research on data center market growth to see what's behind the numbers.

High-Performance and AI Workloads

This is a primary driver for colocation adoption today. Artificial intelligence and machine learning workloads are resource-intensive and often require highly specific hardware configurations that are unavailable from standard public cloud providers.

Colocation enables you to deploy your own custom-built bare metal servers with the exact components needed for your workloads. This includes:

• Specific GPUs: Racks of NVIDIA or AMD GPUs optimized for the parallel processing required for training complex models.
• FPGAs: Field-Programmable Gate Arrays for custom, ultra-low-latency computation.
• High-Speed Interconnects: Specialized networking fabrics like InfiniBand or RoCE (RDMA over Converged Ethernet) that are critical for HPC clustering.

Placing this specialized hardware in a colocation facility provides the raw, unthrottled power of bare metal without the prohibitive cost of building a private data center capable of handling the high power density and cooling requirements. For a deeper dive, check out our guide on finding the best bare metal server provider.

Secure Private and Hybrid Cloud Deployments

For organizations requiring the agility of cloud but needing to maintain strict control and security, colocation is the ideal foundation for a private cloud. Using virtualization platforms like Proxmox VE or VMware, you can build a powerful, isolated environment on your own hardware.

Here's a step-by-step example for a Proxmox VE private cloud:

1. Procure Hardware: Purchase 3-5 identical bare metal servers with sufficient CPU, RAM, and local storage (NVMe recommended).
2. Colocate Servers: Install the servers in a rack at a colocation facility.
3. Install Proxmox VE: Use remote hands or IPMI to install the Proxmox VE hypervisor on each server.
4. Create a Cluster: Configure the servers into a Proxmox VE cluster for high availability and centralized management.
5. Deploy VMs/Containers: Begin provisioning virtual machines and LXC containers for your applications.

This setup offers total control over the entire stack. Furthermore, colocation is the perfect anchor for a hybrid cloud strategy. You can provision a dedicated, high-speed connection (e.g., AWS Direct Connect, Azure ExpressRoute) from your colocated rack directly to a public cloud provider.

This architecture delivers the best of both worlds: a secure, high-performance private cloud for sensitive data and predictable workloads, plus the ability to burst into the public cloud for on-demand scalability.

Disaster Recovery and Business Continuity

Maintaining operational continuity during a crisis is paramount. Colocation facilities are purpose-built for resilience, making them ideal locations for disaster recovery (DR) infrastructure.

By replicating production data and systems to backup servers and storage in a colocation center in a different geographic region, you can insulate your business from local events like power grid failures, natural disasters, or a primary site failure. This forms the basis of a robust business continuity plan.

Compliance-Driven Industries

For industries governed by strict regulations, colocation is often the only viable infrastructure model. Sectors like healthcare (HIPAA), finance (PCI DSS), and government must maintain rigorous control over their infrastructure to pass audits.

Colocation provides a fully auditable environment where you own the hardware, control the access logs, and can physically verify the provider's security controls and certifications. This level of granular control is essential for meeting compliance mandates that are difficult or impossible to satisfy in a multi-tenant public cloud environment.

How to Choose the Right Colocation Provider

Selecting a colocation partner is a long-term strategic decision that directly impacts your infrastructure's reliability, performance, and scalability. The right choice provides a solid foundation for growth, while the wrong one can lead to downtime, poor performance, and operational friction.

The evaluation process must go beyond a simple price comparison. You are entrusting your mission-critical hardware to a third party, so a deep technical due diligence of their facility, network, and operational procedures is essential.

Evaluate Data Center Tiers and Uptime

The first step is to understand the facility's classification. Data centers are rated by the Uptime Institute's tier system, which defines their level of redundancy and fault tolerance. For business-critical applications, you should only consider Tier III and Tier IV facilities.

• Tier III: These facilities are built with N+1 redundancy, meaning every critical component has at least one backup. They guarantee 99.982% uptime and are concurrently maintainable, allowing for maintenance without service interruption.
• Tier IV: This is the highest level, offering 2N+1 (or fully fault-tolerant) redundancy. They deliver 99.995% uptime, making them suitable for mission-critical systems where any downtime is unacceptable.

Requesting a provider's tier certification is a non-negotiable step in your due diligence. This rating is the clearest, most standardized indicator of a facility's resilience.

Analyze Network and Connectivity Options

A data center's value is intrinsically linked to its network ecosystem. A key feature to look for is a carrier-neutral facility. This means multiple internet service providers (ISPs) have a physical presence in the data center, creating a competitive marketplace that lowers your costs and increases your options for redundancy.

You should also evaluate the availability and process for ordering cross-connects. These are direct physical cables (typically fiber optic) that link your rack to other clients or carriers within the data center. They are essential for building low-latency, high-bandwidth connections for hybrid cloud on-ramps or direct peering arrangements.

The quality of a provider's network ecosystem is paramount. Carrier neutrality and robust cross-connect options give you the flexibility to build a redundant, high-performance network architecture that can evolve with your needs.

Scrutinize Power, Cooling, and Security

As server density increases, so do power and cooling requirements. You must verify that the provider can deliver sufficient power per rack—not just for your current hardware, but for future upgrades. High-density racks for AI or HPC workloads can easily draw 15kW or more. Ensure the facility has the capacity and cooling infrastructure to support this.

Security and compliance certifications are equally critical. The provider should hold attestations that validate their operational controls. A key certification to look for is the ISO 27001 certification process, which demonstrates a commitment to information security management. Other important attestations include:

• SOC 2 Type II: Audits the provider’s controls related to security, availability, and confidentiality over time.
• HIPAA: A requirement for storing protected health information (PHI), ensuring proper physical and technical safeguards are in place.
• PCI DSS: Required for handling credit card information, proving a secure physical environment.

Review SLAs and Remote Hands Support

Finally, review the contract details meticulously. The Service Level Agreement (SLA) is the contractually guaranteed level of service. Look for specific guarantees on uptime, power availability, temperature, and support response times. A robust SLA should provide financial recourse (service credits) if the provider fails to meet these guarantees.

Equally important is the quality and scope of their Remote Hands support. This service is your on-site operational extension. Evaluate their responsiveness, technical competency, and the scope of tasks they will perform. A slow or inexperienced support team can turn a minor issue into a major outage. For more tips, our article on the 5 key factors to consider when choosing a hosting provider offers additional guidance.

Common Colocation Questions, Answered

As you evaluate colocation, several practical questions will likely arise. Here are clear, technical answers to some of the most common queries from IT professionals.

Managed Hosting vs. Colocation

The fundamental difference is ownership and control.

With colocation, you own the hardware. You are responsible for the entire stack from the physical server up through the operating system and applications. The provider is responsible for the facility infrastructure: power, cooling, physical security, and network connectivity.

In managed hosting, the provider owns the hardware. They lease you a server and are responsible for managing the physical machine, the network, and often the operating system (e.g., patching, monitoring). It is a hands-off service where you focus primarily on your application.

To use an analogy, colocation is like owning a condo. You own and control everything inside your unit, but you share the building's core infrastructure and security. Managed hosting is like leasing a fully furnished, serviced apartment—the landlord handles all maintenance and utilities.

How Does Colocation Billing Work?

Colocation billing is typically predictable, making it a stable operational expense. It is composed of a few key components:

• Space: The lease for the physical rack space your hardware occupies. This is measured in rack units (U), full racks (e.g., 42U), or a locked cage.
• Power: The cost of electricity your hardware consumes. This is either metered (you pay for actual kWh usage) or based on circuit capacity (a flat fee for a 20-amp or 30-amp circuit).
• Bandwidth: Your internet connection. This can be billed as a flat rate for a committed information rate (e.g., 1 Gbps) or based on data transfer (e.g., the 95th percentile billing model).

Additional costs may include one-time fees for cross-connects or hourly charges for "remote hands" services.

Can I Build a Proxmox VE Private Cloud in a Colocation Facility?

Absolutely. Colocation provides the ideal environment for deploying a private cloud using open-source platforms like Proxmox VE. Since you have complete control over the bare-metal servers, you can install and configure Proxmox exactly to your specifications.

This enables you to create a powerful, isolated environment for your virtual machines and containers. You gain all the benefits of a private cloud—enhanced security, complete control, and dedicated resources—without the immense capital investment required to build a data center from scratch. You can easily cluster multiple Proxmox nodes for high availability and live migration, leveraging the reliable network infrastructure of the colocation facility.

Do I Get Physical Access to My Servers?

Yes, physical access to your own hardware is a standard component of colocation services. Reputable providers offer 24/7/365 escorted access to the facility.

Security protocols are extremely stringent. You will need to follow a strict access procedure, which typically involves pre-scheduling visits and passing through multiple layers of security, including key cards, biometric scanners, and identity verification with on-site security personnel. This ensures that only authorized individuals can physically access your equipment.

Ready to take full control of your infrastructure without the headache of managing your own data center? ARPHost, LLC offers secure, reliable colocation that gives you the foundation to build and grow. Explore our colocation solutions and see how we can become an extension of your IT team.