How Will 5G Affect Commercial Real Estate?
When Alexander Graham Bell invented the telephone in 1876, you can bet he never imagined where his fundamental technology would lead. Similarly, with the 5G revolution on the horizon, we can’t begin to predict what the future may hold. Think of it this way—self-driving cars are just the beginning. This latest wireless technology has the potential to impact nearly every aspect of living. For property owners, brokers and investors, 5G will affect commercial real estate, offering opportunities and obligations. Read on to learn more.
What is 5G?
Before we discuss the impact of 5G, let’s first define the term. The G in 5G stands for generation. Remember when cell phones were about the size of a brick? That was 1G. 2G gave us flip phones, and 3G ushered in the era of smartphones. Today, thanks to 4G, you can stream a video, listen to your favorite playlist, find the quickest route home and on and on. There’s an app for just about everything.
Will 5G be faster than 4G? Yes, about 100 times faster. That’s fast enough to download a two-hour movie in just a couple of seconds. But that’s not all.
5G will allow more devices to connect to one another without slowing down. Called the Internet of Things, or IoT, this network of interconnected devices enables the collection and exchange of data. In other words, we and all of our computers, smartphones, kitchen appliances, televisions, lights, thermostats, cars, clocks—you name it—will be connected to the Internet and, therefore, connected to everything else.
How Does 5G Work?
The upgraded 5G network is needed to support the growing number of things that require Internet access. What does 5G have that 4G doesn’t? First, 5G networks use radio frequencies that are much higher than 4G. These high frequencies can support a large capacity for fast data. Secondly, 5G uses shorter wavelengths, requiring smaller antennas affixed to smaller cell towers that telecom companies can place on roofs as well as inside buildings or on exteriors. However, because of 5G’s shorter wavelength, cell towers will need to be much closer together. Some experts foresee towers on every street corner, so the total number could be in the millions.
How Will 5G Affect Commercial Real Estate?
In many, many ways. Those millions of cell towers that need to be on top of or inside buildings will create opportunities for property owners to profit from leasing space to telecom companies.
Today, cell tower lease rates average around $45,000 annually. Although 5G’s smaller towers will not be able to command nearly that figure, property owners who lease space will still be able to reap significant passive income. Leases between owners and telecoms must clarify how much and the type of equipment that will be installed. Technology changes rapidly, so equipment needs can change, too. Property owners may be able to demand higher rent if there is an upgrade or increase in the amount of equipment.
On a larger scale, more data centers will be needed. 5G and other up and coming technologies require an enormous supply of computing power that takes up a lot of space on servers. And while the bulk of that computing will be in the cloud, large data centers will still be needed to house servers.
To complement cloud computing and strengthen 5G networks, telecom companies will also need space in commercial real estate to set up micro data centers. Ranging from the size of a briefcase to a large filing cabinet, these micro centers will be closer to consumers as they use data. If data does not need to shuttle back and forth from the cloud, then costs and latency—the time in milliseconds that it takes for a source to send a packet of data to a receiver—can be reduced.
Lastly and perhaps most importantly, now’s the time for commercial property owners to begin figuring out what they need to do to prepare for 5G in order to meet tenant demands. Needless to say, upgrading your building’s network can be pricey, so budgeting for such an expense is something to consider before 5G launches in your area. As consumers become accustomed to the speed of 5G, they are going to expect the same connectivity at work.
Furthermore, 5G will give the term “smart building” new meaning. Buildings will be safer thanks to enhanced surveillance camera capabilities. Because everything in a building will be connected to the Internet, data on thermostats, lights, HVAC, occupancy and more will be monitored and fine-tuned 24/7. As a result, tenants could see significant savings on utilities, which is an advantageous selling point.
As if all of this plus self-driving cars weren’t enough, whatever else 5G will enable is almost unimaginable. One thing is certain though—it’s going to be astonishing to watch.
The information contained in this article is general in nature and should not be construed as financial, tax or legal advice. As with any financial or legal matter, consult your tax advisor and legal counsel.
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