I am doing a one-shot and my players are all playing Shadar-Kai their BBEG is a Necromancer and I was wondering since their teleport is a racial ability does that mean Counter spell won't work?

I would rule that Counterspell wouldn't work, but I can see where some DM's might do the opposite. 

Counterspell wouldn't work by rules. I would personally give the explanation is it being like a sorcerer's subtle spell. It doesn't require somatic or verbal components to function as it's a racial trait. Meaning it can't be counterspelled.

Quote from BrentP >>

I am doing a one-shot and my players are all playing Shadar-Kai their BBEG is a Necromancer and I was wondering since their teleport is a racial ability does that mean Counter spell won't work?

 Counterspell only works against someone casting spells. It would work against a racial quality if it's defined as casting a spell (e.g. a tiefling's hellish rebuke).

Not RAW. Their ability is functionally identical to misty step except it isn’t actually a spell they cast.

If it ain't a spell, it ain't gonna be counterspelled. 

Yep, in the ability right up it says they can "magically teleport" but does not say cast.  Whereas say drow, their innate magical abilities are described specifically as spell casting.  

So RAW no; but like Metamongoose, I could see some DMs possibly being open to it ... and setting a table precedent that would pit Counterspell against other magical abilities ... and there be dragons, so maybe better not to.

Unless I msremember and DDB wasn't precise in reproducing Shadar-Kai stats, the ability doesn't mimic a spell and thus has no associated spell (slot) level. That means you couldn't use Counterspell as is anyway.