Your colo renewal quote came in higher than last time. A lot higher. You probably assumed it was inflation, or your provider getting greedy. It is neither.
The colo market changed. Space is not what you are buying anymore. Power is. And there is not enough of it to go around.
Vacancy is near zero
Primary U.S. colo markets ran at about 1.4 percent vacancy in the first half of 2026. That is the lowest number on record. Northern Virginia, Dallas, Phoenix, Chicago, the Bay Area, all of them are effectively sold out for the megawatt-scale deals. Secondary markets like Columbus, Reno, and Atlanta are not far behind.
When vacancy sits under 2 percent, the provider sets the price. You are not shopping. You are asking.
AI is the reason
Hyperscalers signed the deals that ate the supply. Training clusters need 30 to 100 megawatts in a single hall, sometimes more. A single AI tenant can absorb what used to be a whole campus.
Wholesale rates in Northern Virginia climbed from roughly $125 per kW per month in 2021 to about $195 per kW per month by mid-2026. That is a 17 percent jump over five years on the wholesale side, and retail colo is dragging along behind it. If you signed a three-year deal in 2023, the number on your renewal quote in 2026 is going to feel like a different market. Because it is.
Power, not space, is the meter
Old colo contracts priced you by the cabinet or the cage. Power was bundled, usually 2 to 4 kW per rack, and you paid a flat monthly fee.
New contracts price you by the kilowatt. If you take 5 kW per rack, you pay for 5. If your gear pulls 8, you pay for 8, and you probably need a different cabinet spec to get it. The move to per-kW billing is not a trick. It reflects what the data center actually has to buy from the utility, which is measured in megawatts and delivered on a queue that now runs three to seven years long in some markets.
The practical effect: two customers in the same building with the same rack count can pay very different monthly totals. The one with denser gear pays more. That is the point.
What actually drives your 2026 quote
Four things move the number on your quote:
- Utility rate in the metro. Northern Virginia is not Phoenix is not Columbus. The provider passes through what they pay.
- Contract length. Three-year deals cost more per kW than five or seven. Providers want to lock in supply.
- Density. A 3 kW cabinet is priced differently than a 10 kW cabinet. Not proportionally. The higher density often costs less per kW because the provider fits more revenue into the same footprint.
- Cross-connects and remote hands. These used to be rounding errors. In 2026 a cross-connect in a top-tier facility runs $300 to $500 a month, each. Ten of them adds up.
How to protect your renewal
Start 12 months out, not 90 days. The 90-day window works for internet. It does not work for colo anymore, because if you actually need to move, the migration alone takes six months.
Get three quotes. One from your current provider, one from a competitor in the same metro, and one from an Equinix or Digital Realty type facility across town. The gap will surprise you.
Ask for the power draw report on your existing gear. Most customers pay for allocated power, not measured power. If you allocated 5 kW per rack in 2020 and your gear actually pulls 3, you are leaving money on the table every month.
Push back on cross-connect pricing. It is the softest line item on the bill. Providers hate losing an anchor tenant over $400 fees, and they know it.
And read the escalator. A 3 percent annual bump on a five-year deal is not the same as a 6 percent bump. Do the math over the full term before you sign.