Renting Data Center Space: Colocation vs Wholesale

Renting data center space can mean several quite different things. An Uptime Institute research director notes that retail and wholesale describe the provider's packaging model rather than the type of customer, so the same company could buy both. The practical difference is how much of the facility you take, how much of it you run, and how negotiable the contract is.

A note on our role before going further. TAG advises on real estate for occupiers, and engineers size the power. Data center procurement is its own specialty, so a founder should use a specialist advisor, experienced engineers and attorneys for those decisions. We offer this guide so that the leadership team can frame the question, and so the data center plan and the office plan do not end up working against each other.

Retail is the smallest unit and the most standardized. According to Uptime, customers buy a small quantity of space and power, usually by the rack or a fraction of a rack, for a fixed fee based on maximum power capacity and space used. That fee bundles capital, IT power and cooling costs. You get predictable pricing with limited visibility into what is inside it.

TechTarget describes retail as suiting a few tens or low hundreds of standard servers, with power and distribution set by the standard contract. The trade-offs it and Uptime describe are worth noting.

• Retail facilities typically cap power per area and across the site, which TechTarget says can rule out very dense GPU or supercomputing platforms.
• Cooling is hard to add for a single customer at a shared site.
• Access is shared with other customers, so equipment is typically secured in cages.
• Customer leverage is limited at small scale, and Uptime says retail customers are more likely to face cost increases at renewal.

In wholesale, a single customer leases a dedicated block. Stream Data Centers describes it as leasing fully built data center space, such as a suite, hall or an entire building, and as suiting enterprise-scale needs of typically at least 1 MW. TechTarget puts the usual floor at around 300 kW, with 1 MW and above as the sweet spot. Those figures differ, and the thresholds are provider-specific, so ask rather than assume.

Uptime describes wholesale pricing as customized. It can be a fixed fee for total capacity, a more granular structure with a per-rack fee and metered IT power, or a blend of a fixed baseline with variable charges. IT power costs can pass directly to the customer, so the customer bears price fluctuations. Most customers also need their own cross-connects in the meet-me room.

TechTarget adds that wholesale gives more flexibility on cooling, on bringing your own internet provider, and on who has access to the site. It also says wholesale tends to cost more overall, because the customer is effectively building its own data center environment, and that most organizations will find retail sufficient. A company should have a real load justifying the commitment.

A powered shell is further along the same line. Uptime describes the provider delivering a building with core infrastructure, while the customer fits out the interior. That is closer to construction than to renting: the customer would need the engineering and project capacity to design and deliver what goes inside.

In build-to-suit, the provider designs and builds to the customer's specification, and Uptime says this is typically under a long-term agreement exceeding a decade. These structures are generally a matter for very large users, and few startups will be in a position to use them directly.

These lines blur in practice. TechTarget notes that large owners now rent big areas of massive facilities under highly personalized contracts, so judge each offer by what it actually contains.

Work through these in order. The first step belongs to your engineers, not to a real estate advisor.

1. Have engineers define the load: the power needed now and at the end of the likely commitment, the density per rack, the cooling approach and the redundancy your workloads require.
2. Ask whether your workloads belong in a data center at all, or whether cloud capacity is a better answer for now. Our guide on office, colocation and cloud covers this choice.
3. Compare that load against what retail providers will offer. If a standard contract can deliver the density and cooling, retail is often the simpler path.
4. If it cannot, or if you need control over cooling, access or carriers, ask wholesale providers what their minimum commitment is.
5. Consider who will run it. Wholesale and powered shell ask for more in-house capability, or a partner who has it.
6. Test timing. Ask when capacity can be delivered, what remedies apply if it is late, and how that fits your hardware delivery and financing.
7. Have a specialist attorney and advisor review the proposals, and model the total cost including power, cross-connects and remote support across the full term.

• ✓What power and density do we need, according to our engineers, and how confident are they?
• ✓How much of the commitment could we fill on day one, and what would idle capacity cost us?
• ✓Do we want predictable fees, or are we willing to bear power price movement in exchange for visibility?
• ✓Who on our team can manage a facility relationship, or a fit-out?
• ✓Do we need network or customer proximity that restricts where we can go?
• ✓How hard would it be to move if the first choice turned out to be wrong?

Compute decisions and workplace decisions affect each other, even when they sit with different people. A company that keeps some hardware in its office has to ask what the building can carry. A company with a lab or a test environment may need particular connections to its compute. And a long infrastructure commitment competes with an office lease for the same runway.

That is where TAG can help: on the office, flex or industrial side, we can work with your infrastructure lead so timing, location and total commitment are planned together. We leave the sizing to the engineers, and the data center contract to those who specialize in it.