> ## Content Index > Fetch the complete content index at: https://www.sotkn.com/llms.txt > Use this file to discover other available public pages before exploring further. # Hyperscale vs Colocation Data Centers: Same Power, Different Rent - URL: https://www.sotkn.com/explained/hyperscale-vs-colocation-data-center/ - Published: 2026-10-13T03:31:15.000Z - Updated: 2026-10-13T03:31:15.000Z - Description: A hyperscale data center is a huge hall for one cloud or AI giant; a colocation data center rents cages, racks and connections to many tenants. Per kilowatt, colocation pays far more. Per lease, hyperscale lasts twice as long, and power scarcity is now repricing the big leases. - Author: Sean - Tags: Versus, #desk-explained EXPLAINED · Versus · Last reviewed: 13 Oct 2026 · Next review: after Digital Realty's and Equinix's third-quarter 2026 results A hyperscale data center is a very large hall built for, or leased whole by, one cloud or AI company; a colocation data center is a shared building where many companies rent cages, racks, power and connections to each other. The money differs: at Digital Realty in the second quarter of 2026, new small leases (up to 1 MW) paid $280 per kilowatt a month and large leases (over 1 MW) paid $157, but the large ones signed for 8.8 years against 4.1. **In short.** Hyperscale means one giant tenant per hall; colocation means many tenants sharing a building and paying to connect. Per kilowatt, colocation pays more: $280 a month against $157 for Digital Realty's new leases in the second quarter of 2026\. Per lease, hyperscale lasts longer: 8.8 years against 4.1, so over the first term a big lease brought in about 20% more rent per kilowatt (our arithmetic). The stuck step is powered halls: with power scarce, Digital Realty's expiring big leases renewed 66.7% higher. Hyperscalers still own almost 60% of their capacity, so landlords compete with their own tenants. Why an investor cares: the same megawatt earns very different money depending on who rents it and for how long. That decides how fast a landlord’s income can reprice and how much it costs to win the next tenant. This page builds on [what an AI data center is](https://www.sotkn.com/explained/what-is-an-ai-data-center/) and compares the two ways a hall gets rented. ## What is the difference between a hyperscale and a colocation data center? The tenant. A hyperscale hall serves one company, such as a cloud provider or an AI lab, and is sized for its servers alone. A colocation building is shared: a landlord runs the power, cooling and security, and many tenants rent space inside and connect their equipment to each other. The two are built from the same parts, land, power, cooling and fibre, so the difference shows up in the contract rather than the concrete. Big tenants get a lower price per kilowatt and sign for longer. Small tenants pay more per kilowatt, sign for shorter, and pay extra to plug into everyone else. | | Hyperscale data center | Colocation data center | | ------------------------ | --------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | | **Who is inside** | One cloud or AI company per hall, or per building | Many companies: banks, networks, clouds, software firms, AI start-ups | | **Who owns it** | The hyperscaler (almost 60% of hyperscale capacity) or a landlord on a whole-hall lease | A landlord such as Equinix, Digital Realty, Keppel DC REIT or NEXTDC | | **Size of a deal** | Over 1 MW, often a whole building | A cage, a few racks, up to about 1 MW | | **Rent per kW a month** | $157 on Digital Realty's new leases over 1 MW, Q2 2026 | $280 on its new leases up to 1 MW, Q2 2026 | | **Lease length** | 8.8 years (new, Q2 2026); Keppel DC REIT single-tenant 9.1 years left | 4.1 years (new, Q2 2026); Keppel DC REIT colocation 2.8 years left | | **Extra income** | Little; the tenant runs its own network | Interconnection fees: Equinix earned $453m from them in Q2 2026 | | **Cost to win the deal** | About $1 per kW (Digital Realty, last 12 months) | About $32 per kW (Digital Realty, last 12 months) | | **Looks like** | Real estate: NEXTDC now books its hyperscale deals as leases | A service: NEXTDC still books colocation as customer contracts | *From Digital Realty, Equinix, Keppel DC REIT, NEXTDC and Synergy Research Group filings and releases, listed under References.* ## What is a hyperscale data center? A very large data center run by or for one of the big cloud and internet companies. Synergy Research Group counted 1,360 hyperscale data centers at the end of 2025 and said they held 48% of the world’s data center capacity. It expects 67% by 2031\. Who the hyperscalers are, and how they make money, is in [what is a hyperscaler](https://www.sotkn.com/explained/hyperscaler-explained/). Almost 60% of that hyperscale capacity sits in buildings the hyperscalers built and own. The rest, a little over 40%, is leased. That leased slice is roughly a fifth of all the world’s capacity (our arithmetic: about 40% of 48%), and it is the part landlords fight over. “The world is racing towards a situation where hyperscale operators are responsible for the bulk of global data center capacity,” said John Dinsdale, chief analyst at Synergy Research Group, in April. He said almost 800 hyperscale data centers are in Synergy’s known pipeline, enough to double hyperscale capacity in three years. ## What is a colocation data center? A building where a landlord rents out space, power and cooling, and tenants bring their own servers. A tenant might take a single rack, a locked cage or a small hall. Synergy says non-hyperscale colocation held 20% of world capacity at the end of 2025\. Its share is expected to shrink to 14% by 2031, but Synergy says colocation capacity itself keeps growing at close to double-digit rates each year. The second income line is the cable. Tenants in the same building pay monthly fees to link directly to each other, to telecom networks and to the clouds. Equinix earned $1.772 billion from colocation and $453 million from interconnection in the second quarter of 2026, and added a record 9,700 net new connections. Interconnection was about 19% of its recurring revenue (our arithmetic). The full model is in [what Equinix does](https://www.sotkn.com/stack/ai-data-centers/what-does-equinix-do/). ## Who pays more per kilowatt? Colocation tenants, by a wide margin. Digital Realty, which runs both kinds of business, splits its leasing by deal size. In the second quarter of 2026 its new small leases, up to 1 MW, paid $280 per kilowatt a month. Its new large leases, over 1 MW, paid $157\. Big tenants paid about 44% less per kilowatt (our arithmetic). How that landlord earns its money is in [what Digital Realty does](https://www.sotkn.com/stack/ai-data-centers/what-does-digital-realty-do/). | Digital Realty, second quarter of 2026 | Small deals (0–1 MW) | Large deals (over 1 MW) | | ------------------------------------------------ | -------------------- | ----------------------- | | New leases signed (its share) | 26.1 MW | 52.9 MW | | Annual rent signed (its share) | $87.8m | $99.8m | | Rent per kW a month (GAAP) | $280 | $157 | | Average lease term | 4.1 years | 8.8 years | | Rent per kW over the first term (our arithmetic) | about $13,800 | about $16,600 | | Renewals: cash rent change | +5.2% ($331 to $348) | +66.7% ($159 to $265) | | Churn in the quarter | 2.0% | 0.4% | *Digital Realty’s second-quarter 2026 financial supplement. First-term rent is Second Order arithmetic: monthly rent × 12 × lease years, before rent increases and discounting.* The big tenant buys time with the discount. Large leases signed in the quarter ran 8.8 years on average, against 4.1 for small ones. Multiply rent by term and a large lease brought in about $16,600 per kilowatt over its first term, against about $13,800 for a small one, roughly 20% more (our arithmetic, before rent increases and discounting). Small deals also cost more to win and leave more often. Over the last 12 months Digital Realty spent about $32 per kilowatt in leasing costs on small deals against about $1 on large ones, and quarterly churn was 2.0% on small deals against 0.4% on large ones. ![Hyperscale vs colocation rent per kilowatt at Digital Realty in Q2 2026: small renewals $348, small new leases $280, large renewals $265, large expiring rent $159, large new leases $157](https://storage.ghost.io/c/cd/10/cd10e222-131f-4ba4-b4a9-ca4214e8c12d/content/images/2026/10/hyperscale-vs-colocation-rent-chart.png) Small leases pay more per kilowatt; large renewals are closing the gap. Digital Realty, second quarter of 2026; Second Order arithmetic. ## Why are big leases renewing so much higher? Because powered halls are scarce, and the old large leases were signed when they were not. Digital Realty’s expiring large leases in the second quarter paid $159 per kilowatt a month in cash. They renewed at $265, up 66.7%. Small leases renewed only 5.2% higher, from $331 to $348. This is the stuck step showing up in the rent. A hyperscaler that wants to stay in a live, connected hall cannot easily move: a new hall needs a grid connection that can take years, as [how long it takes to build an AI data center](https://www.sotkn.com/explained/how-long-does-it-take-to-build-an-ai-data-center/) explains. So the landlord holding an expiring lease on a powered hall has the stronger hand. Our view: the gap between the two prices is the thing to watch, not either price alone. While power stays scarce, the hyperscale discount narrows at each renewal and the landlord’s income resets upward. If power becomes easy to get, the discount widens again and the long lease is all the landlord has. ## Who gets paid in each model? - **Colocation landlords, monthly and often.** Rent plus connection fees, on short leases that reprice every few years. Equinix and the colocation side of Digital Realty, Keppel DC REIT and NEXTDC live here. - **Hyperscale landlords, slowly and for longer.** Lower rent per kilowatt, locked in for close to a decade, plus occasional one-off fees. Equinix said one-time fees from xScale, its hyperscale joint-venture business, lifted second-quarter revenue; non-recurring revenue was $248 million against $113 million a year earlier. - **Buyers of finished hyperscale halls.** Digital Realty bought a 64% stake in three fully leased Northern Virginia data centers with 288 MW, at a gross value of about $7.8 billion, at an expected starting yield of over 6.5%. That is about $27 million per megawatt (our arithmetic). - **The hyperscaler, which pays least per kilowatt but signs longest.** It also builds most of its own capacity, so every landlord competes with its biggest customer. ![Who gets paid in hyperscale vs colocation data centers: colocation landlord rent plus connection fees, hyperscale landlord long leases at lower rent, stuck step powered halls, hyperscaler pays least per kilowatt](https://storage.ghost.io/c/cd/10/cd10e222-131f-4ba4-b4a9-ca4214e8c12d/content/images/2026/10/hyperscale-vs-colocation-who-gets-paid.png) Stuck step: powered halls. Digital Realty, 23 July 2026; Equinix, 29 July 2026; Synergy Research, 7 April 2026. ## How does it work in Singapore, Australia and Malaysia? - **Singapore: colocation by design.** Keppel DC REIT, a Singapore-listed landlord, earned 74.1% of its rent from colocation at 30 June 2026, with an average of 2.8 years left on those contracts. Single-tenant halls were 21.0% of rent with 9.1 years left. Short leases let it reprice fast: renewals in the first half started about 10% higher. Singapore rations new power, and on 21 August 2026 the EDB and IMDA gave its latest 200 MW to four landlords, Digital Realty, Equinix, Keppel Data Centres and ST Telemedia Global Data Centres, 50 MW each. See [what Keppel DC REIT does](https://www.sotkn.com/stack/ai-data-centers/what-does-keppel-dc-reit-do/) and our [Singapore Pulse](https://www.sotkn.com/markets/singapore/singapore-data-centre-licence-october-2026/). - **Australia: one landlord, two kinds of books.** NEXTDC signed long-term hyperscale agreements at its M3 Melbourne and S4 Sydney sites in its 2026 financial year and now books them as operating leases, with the sites valued as investment property at capitalisation rates of 6.00% to 6.25%. Its colocation revenue is still booked as customer contracts. Contracted capacity reached 740.1 MW against 175.0 MW billing at 30 June 2026\. See [what NEXTDC does](https://www.sotkn.com/stack/ai-data-centers/what-does-nextdc-do/). - **Malaysia: landlords buying in.** Digital Realty bought two data centers in Malaysia with 16.5 MW of capacity, plus land for about 14 MW more, for about $134 million in the second quarter of 2026\. Our [Malaysia Pulse](https://www.sotkn.com/markets/malaysia/malaysia-data-centre-power-use-october-2026/) shows how much connected power there is still waiting to fill. ## What would prove this wrong? - **Large renewals stop jumping.** If Digital Realty’s over-1 MW renewals fall back to single-digit increases, power scarcity is no longer setting the price. - **Hyperscalers build more for themselves.** If the owned share of hyperscale capacity rises well above 60%, the leased slice landlords fight over shrinks. - **Colocation churn rises.** If small tenants move into the cloud faster than new ones arrive, the higher price per kilowatt stops making up for shorter leases. ## What to check next Digital Realty’s and Equinix’s third-quarter 2026 results will show whether large-lease renewals are still repricing and whether interconnection keeps growing. Keppel DC REIT’s next update will show whether colocation renewals are still starting higher. Singapore’s EDB and IMDA said they will review the need for another call for applications in 18 to 24 months. ## Common misconceptions - **People assume hyperscale halls are always owned by the hyperscaler.** Actually a little over 40% of hyperscale capacity is leased from landlords. - **People assume the cheaper rent makes a hyperscale lease worse for the landlord.** Actually the longer term made a large Digital Realty lease worth about 20% more per kilowatt over its first term (our arithmetic). - **People assume colocation is dying because its share is shrinking.** Actually Synergy expects colocation capacity to keep growing at close to double-digit rates each year; it is only growing slower than hyperscale. ## FAQ **What is the difference between a hyperscale and a colocation data center?** A hyperscale data center is a very large hall that serves one cloud or AI company, which either owns it or leases the whole thing. A colocation data center is shared: many companies rent cages, racks and power in the same building and pay to connect to each other. **What is a hyperscale data center?** A large data center run by or for one of the big cloud and internet companies. Synergy Research Group counted 1,360 of them at the end of 2025, holding 48% of the world's data center capacity. Almost 60% of that hyperscale capacity is in buildings the hyperscalers own; the rest is leased from landlords. **What is a colocation data center?** A building where a landlord such as Equinix, Digital Realty or Keppel DC REIT rents space, power and cooling to many tenants, who bring their own servers. Tenants also pay monthly fees for cables linking them to each other, to networks and to clouds, which is called interconnection. **Is colocation more expensive than hyperscale?** Per kilowatt, yes. Digital Realty's new small leases (up to 1 MW) in the second quarter of 2026 paid $280 per kilowatt a month, against $157 for leases over 1 MW. But the large leases ran 8.8 years against 4.1, so over the first term a large lease brought in about 20% more rent per kilowatt (our arithmetic, before rent increases). **Do hyperscalers use colocation?** Yes. Synergy Research Group says a little over 40% of hyperscale capacity is in leased facilities rather than owned ones. Landlords serve that through large single-tenant halls, such as Equinix's xScale joint ventures and Digital Realty's leases over 1 MW. **Is this a list of stocks to buy or sell?** No. Second Order Explained pages explain how the money moves. They do not give buy or sell calls. Related: [what is an AI data center](https://www.sotkn.com/explained/what-is-an-ai-data-center/); [what is a hyperscaler](https://www.sotkn.com/explained/hyperscaler-explained/); [neocloud vs hyperscaler](https://www.sotkn.com/explained/neocloud-vs-hyperscaler/); [what Digital Core REIT does](https://www.sotkn.com/stack/ai-data-centers/what-does-digital-core-reit-do/). ## Stack doors Layer: [AI Data Centers](https://www.sotkn.com/stack/ai-data-centers/). Also: [Hyperscalers](https://www.sotkn.com/stack/hyperscalers/), [Neoclouds](https://www.sotkn.com/stack/neoclouds/), [Semiconductors](https://www.sotkn.com/stack/semiconductors/). Markets: [US](https://www.sotkn.com/markets/us/), [Singapore](https://www.sotkn.com/markets/singapore/), [Malaysia](https://www.sotkn.com/markets/malaysia/), [Australia](https://www.sotkn.com/markets/australia/). [Get the Wire](https://www.sotkn.com/#/portal/signup) — short daily notes when data center leases, power and build dates move. **How we check this** Rents, lease terms, revenue and capacity shares come from Digital Realty’s and Equinix’s SEC filings, Keppel DC REIT’s SGX filing, NEXTDC’s ASX release, Singapore’s EDB and IMDA, and Synergy Research Group, listed under References. Each was re-checked on 13 Oct 2026\. Where we work something out ourselves, such as rent over a lease term or a share of revenue, it is labelled “our arithmetic”. Digital Realty reports by deal size, not by building type; we treat its over-1 MW bucket as the hyperscale side because that is where whole-hall leases sit. This page explains how the money moves. It does not give buy or sell calls. **Last reviewed:** 13 Oct 2026 · **Next review:** after Digital Realty's and Equinix's third-quarter 2026 results Spot an error? [Tell us](mailto:sean@thekopinotes.com) and we will correct it and note the change here. [Our editorial standards →](https://www.sotkn.com/editorial-standards/) ## References 1. [Synergy Research Group — Hyperscale Operators to Account for 67% of all Data Center Capacity by 2031 (7 Apr 2026)](https://www.srgresearch.com/articles/hyperscale-operators-to-account-for-67-of-all-data-center-capacity-by-2031?ref=sotkn.com) — capacity shares by hyperscale, colocation and on-premise; owned vs leased hyperscale; John Dinsdale quote 2. [Digital Realty — Second quarter 2026 earnings release and financial supplement (SEC Form 8-K exhibit, 23 Jul 2026)](https://www.sec.gov/Archives/edgar/data/1297996/000110465926086270/dlr-20260723xex99d1.htm?ref=sotkn.com) — rent per kW, lease terms, renewal spreads and churn by deal size; bookings; Northern Virginia and Malaysia purchases 3. [Equinix — Second-quarter 2026 results (SEC Form 8-K exhibit, 29 Jul 2026)](https://www.sec.gov/Archives/edgar/data/1101239/000110123926000145/a991eqix-q226xpr.htm?ref=sotkn.com) — colocation and interconnection revenue, net interconnections, one-time xScale fees 4. [Keppel DC REIT — 1H 2026 results presentation (SGX filing, 23 Jul 2026)](https://www.keppel.com/file/media/2026/jul/23-jul-kdcr/kdcreit-1h-2026-results-presentation.pdf?ref=sotkn.com) — colocation vs single-tenant share of rent and lease lengths; rent reversion 5. [NEXTDC — FY26 results (ASX release, 27 Aug 2026)](https://announcements.asx.com.au/asxpdf/20260827/pdf/073c04gt4ts40y.pdf?ref=sotkn.com) — hyperscale agreements booked as operating leases; investment-property cap rates; contracted and billing MW 6. [EDB and IMDA — Fact sheet: four data centre proposals selected in DC-CFA2 (21 Aug 2026)](https://www.edb.gov.sg/content/dam/edb-en/about-edb/media-releases/news/four-data-centre-proposals-selected-as-part-of-second-data-centre/Fact%20Sheet%20-Four%20data%20centre%20proposals%20selected%20as%20part%20of%20second%20data%20centre.pdf?ref=sotkn.com) — Singapore's 200 MW allocation to four operators S **[Sean](https://www.sotkn.com/author/sean/)** Writes Second Order by TKN — a plain-English map of AI infrastructure and semiconductors for non-specialist investors. Focus: who gets paid, where money sticks, and which step is stuck. Covers AI infrastructure, semiconductors, and second-order stack reads. [Author page →](https://www.sotkn.com/author/sean/) · [Editorial standards →](https://www.sotkn.com/editorial-standards/)