03 April 2025

Is colocation the future for the UK’s IT sector? Does in-house data centre ownership still make sense amidst rising energy prices and skills shortages? We chat with industry experts to find out what to expect in the years to come…

As UK enterprises navigate an increasingly complex digital landscape, the debate between colocation and in-house data centre capacity has never been more relevant. With rising economic pressures, energy costs, and sustainability concerns, many businesses are reassessing their IT strategies to determine the most efficient, cost-effective, and scalable approach.

Why colocation is gaining popularity

One of the primary drivers behind the shift towards colocation is cost-efficiency. Enterprises today need to control IT spending while ensuring high availability, security, and compliance.

Craig Messer, Managing Director of VeloxServ, explains that colocation offers lower upfront costs, reduced capital expenditure, and operational pricing models that make predictable budgeting far easier than managing an in-house facility - a tempting prospect.

“Colocation enables a business to scale up or down without costly changes to infrastructure, this also means a business can remain focused on its core operations and prioritising valuable time and resource into innovation and growth rather than data centre maintenance,” adds Messer.

Netwise Director Matt Seaton echoes this sentiment, emphasising that high-availability services are often out of reach for businesses operating on their own: “data centre operators have already made this investment, allowing clients to share in a purpose-built facility with only an operational cost consideration, giving access to a quality of service which far outstrips what would be possible in a non-data centre environment.”

Beyond financial efficiency, colocation offers greater flexibility and scalability. As business demands fluctuate, companies need IT infrastructure that can scale up or down without the burden of physical expansion or costly upgrades.

According to Vinny Vaghani, Operations Manager, IP House Ltd, “colocation is more cost-effective, flexible, and reliable than running an in-house facility. Businesses avoid the huge upfront investment and ongoing maintenance costs while benefiting from high-speed connectivity, built-in redundancy, and compliance with regulations.”
When does an in-house data centre still make sense?

While colocation is becoming the default choice for many enterprises, some organisations still find owning and operating a private data centre preferable.
Messer points out that sectors such as banking and healthcare often have strict security and compliance mandates that require keeping data in-house: “for larger or more established businesses with high but stable IT demands, it can also be more cost effective to invest in owning and operating a data centre rather than paying for colocation.”

Vaghani agrees that control and compliance remain key reasons for maintaining private data centres but warns that enterprises must weigh the long-term costs against the benefits of outsourcing.

“An in-house data centre still makes sense for businesses that handle sensitive data, need ultra-low latency, or have strict compliance requirements that demand full control over infrastructure. Large companies with stable, predictable workloads may also find that owning their own facility pays off in the long run,” notes Vaghani.
Matt Seaton, however, notes that these scenarios are becoming increasingly rare: “with modern high-performance networks, there are now very few cases in which allocating capital and costly in-house office space to a suitable on-site facility would be more advantageous. Generally, this is now limited to local comms room requirements, and in some instances a local ‘lab’ environment for system design and testing; even the latter use case here is now finding its place within an outsourced data centre.”

Scalability: is colocation the long-term winner?

Scalability is a major consideration in the build vs. buy debate, as IT infrastructure must support growth, performance demands, and evolving business models.
“Scalability plays a crucial role in deciding between colocation and an in-house data centre, as it impacts on budgets and capital expenditure vs. operational expenditure strategy, flexibility and growth plans, performance and return on investment and ultimately an alignment to the long-term strategic goals of a business,” says Seaton. “In-house data centres make the most sense when a business requires absolute security, ultra-low latency, complete control, or when long-term IT needs justify the investment. However, for most enterprises, colocation remains the more cost-effective, scalable, and resilient solution.”

Vaghani believes colocation remains the more agile choice, particularly for businesses considering hybrid cloud strategies: “colocation makes scaling quick and easy without the financial risk of expanding an in-house facility. But long-term, businesses should consider if their infrastructure will move toward hybrid solutions, where colocation can act as a central hub connecting private systems to cloud services.”

Indeed, while scaling services quickly is undoubtedly a clear advantage when working with a data centre, many enterprise clients see somewhat limited scaling requirements once their base service has been deployed, maintains Seaton: “we primary see heavy scaling requirements with MSPs and cloud service operators, who have to actively scale their deployments as their own client base grows, which isn’t always the case with an enterprise customer.”

Crucial considerations

Before committing to either colocation or an in-house data centre, UK enterprises must assess their IT needs, compliance obligations, and financial strategies.
According to Messer, the decision revolves around five core areas:

1. Business strategy – Is the company planning for growth? Does IT infrastructure directly impact operations? Are sustainability goals better served by an external provider?
2. Budget – Can the business afford the capital expenditure of building a data centre? Are the ongoing costs of security, maintenance, and staffing sustainable?
3. Regulatory and compliance – Are there industry regulations such as GDPR, ISO 27001, or FCA requirements that demand on-premise data storage?
4. Performance and connectivity – Does the business need ultra-low latency for financial transactions or AI processing? Does it require direct interconnects to cloud providers?
5. Disaster recovery and business continuity – Can the company match colocation providers’ redundancy, security, and uptime guarantees?

Seaton, however, suggests that most modern enterprises do not need to build private data centres unless they are large-scale technology firms like Amazon or Google: “for the vast majority of businesses, colocation is the obvious choice — providing enterprise-grade infrastructure without the burden of managing a complex, non-core business function.”

What lies ahead…

For most UK enterprises, colocation presents a clear advantage over in-house data centres, offering lower costs, greater scalability, and enterprise-grade resilience without the need for massive capital investment. While compliance-heavy industries may still require private infrastructure, the growing demand for hybrid cloud, AI workloads, and energy-efficient solutions is making colocation the preferred option. Moreover, as digital transformation accelerates, the UK’s data centre landscape will continue evolving, with colocation playing an even greater role.

Messer believes the ongoing surge in data consumption — driven by AI and other applications — will fuel record levels of investment in colocation facilities: “for many businesses, the need for a scalable and cost-effective solution is likely to drive demand for colocation services. However, sectors such as financial services, government agencies and healthcare providers are likely to invest in in-house data centres to meet their unique requirements.”

Meanwhile, Vaghani expects hybrid cloud and edge computing to fuel further colocation growth, particularly as energy costs and sustainability concerns make private data centres less attractive: “companies will prioritise shared, energy-efficient infrastructure, reducing the need for dedicated on-premise facilities.”
Seaton is confident that colocation’s role will remain foundational as businesses demand greater reliability and 24/7 uptime.

“Not all of the UK’s data centre growth will be driven by colocation, but as more organisations embrace modern technologies, finding a suitable home for critical IT infrastructure will remain a key priority,” explains Seaton.

As UK enterprises plan for the future, the decision to build or buy must align with long-term business goals, IT strategy, and financial sustainability. With colocation providers offering cutting-edge infrastructure, security, and redundancy, it’s no surprise that more enterprises are moving away from in-house facilities and embracing the flexibility of shared data centre environments.