Execution Guides

Colocation, Retrofit, or Development: How to Choose

Published by Stacked AI

Compare colocation, retrofit, and new development against the same workload, delivery milestone, and commercial scope. The most useful first question is which options can support the requirement with evidence. A nominal capacity figure or an indicative price is not enough to establish that an option fits.

This framework organizes an initial decision. It does not presume that one route is always faster, cheaper, or better.

Define the three routes

Colocation: obtain space, power, and agreed facility services from a provider. Establish what the provider supplies, what the customer must install, and the contractual scope of the service.

Retrofit: adapt an existing building or facility for the proposed workload. This may involve an owned or acquired asset. Define which systems can be retained and which need modification or replacement.

New development: create a new facility for the requirement. Define ownership, delivery, operating responsibilities, and the development work needed at the proposed site.

These routes can overlap. A phased colocation commitment may support an initial deployment while a longer-term facility is assessed. Test each phase on its own evidence and account for any duplicated costs or migration work.

Set one comparison brief

Before requesting proposals, specify:

  • Initial and later usable IT load, with expansion milestones.
  • Rack density, cooling approach, and the workload’s operating requirements.
  • Geographic and connectivity constraints that can be explained and tested.
  • The date service must be usable, including installation and acceptance activities.
  • Permitted phasing, temporary capacity, and migration constraints.
  • Required control over the facility and responsibility for operating it.
  • The comparison period and the commercial costs to include.

Separate hard requirements from preferences. An option that cannot satisfy a hard requirement should not rise to the top because its indicative price is attractive.

Compare evidence and responsibility

Decision factorColocationRetrofitNew development
Capacity and powerEstablish what is available for this customer, under what terms, and at what milestoneReconcile the proposed load with the existing power position and required changesExamine the proposed service arrangement and dependencies for bringing power to the site
Workload fitCheck the offered density, cooling, connectivity, and installation scopeAssess retained systems and the work needed to support the workloadTranslate requirements into the design and acceptance scope
DeliveryReview the provider’s committed scope, remaining construction, and customer installation scheduleReview surveys, design, approvals, procurement, construction, and commissioning dependenciesReview site control, approvals, utility work, design, procurement, construction, and commissioning dependencies
Control and operationsDefine provider and customer responsibilities in the service arrangementDefine responsibility for upgrade delivery and ongoing operationsDefine responsibility across development, ownership, and operations
Commercial comparisonInclude recurring charges, setup costs, escalation terms, customer equipment, and any minimum commitmentsInclude acquisition or occupancy costs, upgrade work, operating costs, and transition workInclude site and development costs, operating costs, financing assumptions where relevant, and transition work
Expansion and exitCheck expansion terms, renewal provisions, and exit or migration obligationsCheck physical and service constraints plus future use of the assetCheck planned expansion, future service dependencies, and alternative use assumptions

The table lists questions to investigate. It does not establish the cost or delivery position of a particular proposal.

Illustrative example: 5 MW within 24 months

Assume a buyer needs 5 MW of usable IT load within 24 months, can deploy in two phases, and has a fixed geographic constraint. The example below uses hypothetical proposals and no market price or availability assumptions.

OptionInformation receivedWhat remains unresolvedNext decision
ColocationA provider offers a phased allocation and an indicative commercial proposalWhether the allocation covers the required density and cooling; the contractual delivery scopeRequest a technical response and proposed milestone terms before treating it as a viable offer
RetrofitAn existing facility has an electrical assessment and an outline upgrade scopeWhether retained systems support the workload; equipment dates and the full commissioning scopeCommission the relevant engineering assessment and a scoped delivery estimate
New developmentA potential site has been identified and a concept preparedThe service position, approvals, procurement dependencies, and evidenced scheduleEstablish the dependencies and decision dates before relying on the target operating date

No winner follows from this information alone. Colocation may warrant detailed negotiation if its outstanding questions can be resolved. Retrofit may remain useful if the necessary work is feasible within the window. New development needs sufficient evidence to support the required milestones or a separately viable interim phase.

Compare costs on a consistent basis

Use the same operating period, phased load, and stated utilization assumptions for every option. Separate quoted costs from estimates and leave genuinely unknown items visible. A blank is not a zero.

Include the costs needed to make each option usable for the same requirement. Identify exclusions such as customer installation, connectivity, migration, energy-related charges, operating staff, or equipment replacement when they matter to the scope. Avoid counting the same item in both a provider charge and a separate estimate.

If comparing an owned asset with a service contract, show capital timing and any assumed residual value separately. Residual value is an assumption to examine, not cash already earned. Use appropriate financial review for discounting, tax, financing, and ownership assumptions that could change the decision.

Test changes in the important inputs: delayed delivery, slower or faster load growth, revised energy assumptions, an additional migration, or an expansion that becomes unavailable. Show which change reverses the recommendation rather than relying only on a single total.

Use decision gates to narrow the options

  1. Requirement fit: can the option support the necessary workload and location?
  2. Delivery evidence: does the proposed schedule account for the material dependencies and customer installation work?
  3. Comparable commercial scope: are the costs, obligations, and exclusions sufficiently clear to compare?
  4. Execution responsibility: are the parties responsible for delivery and operations identified?
  5. Fallback and flexibility: what happens if demand, timing, or scope changes?

An initial shortlist should state why each option remains under consideration, what evidence is missing, who must supply it, and when the next decision is due. Technical design suitability and the effect of specific contract terms need review by the relevant engineering and legal advisers.

Start with a consistent shortlist

For a capacity sourcing inquiry, provide the initial and expansion requirements, geography, density and cooling needs, operating deadline, and any permitted phasing. Include the route already under consideration and the assumptions that must be tested.

Explore data center capacity sourcing and the Site Screen.

For the power evidence behind any proposed route, see what supports a power-delivery date. Read the evidence and editorial methodology for how to interpret documented information, assumptions, estimates, and missing evidence.

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