Commercial Investment Real Estate Winter 2020

and data rights within their properties. Private 5G networks within build- ings will be a viable option because there is potential for property owners or third-party companies to tap into unlicensed spectrums that will be made available in mid-2020. The more challenging questions for property own- ers are how to manage internal 5G networks and what do 5G strategies look like, says Matt Davis, executive vice president of the building technology consultancy division at CBRE. “There is so much optionality that each building needs its own business analysis,” he says. However, it is important that, whatever strategy is put in place, that it is scalable and future-proof, he adds. 5G is expected to improve performance to 50 times what consumers currently experience. at Deloitte. “That experience and analytics is largely driven by the technological capability of mobility and apps. 5G is going to have a profound impact.” LANDLORDS CONSIDER OPTIONS TO MONETIZE 5G Landlords are in the early stages of trying to figure out how to monetize the technology by leasing space for new 5G cellular towers on site, as well as developing strategies to deploy and control private 5G network and data rights within their own properties. Property owners are exploring differ- ent opportunities to leverage 5G to add value: • Qualified leasehold improvement property; • Reducing operating costs by running more sophisticated systems that create added efficiencies; • Improving cyber and building security; • Supporting tech and amenities that enhance the occupier experience; and • Generating more revenue through fees and/or higher rents. There is a strong business case to add tech infrastructure to attract tenants. One example of that is the 111 8th Avenue build- ing in New York that Google bought for $1.9 billion in 2010. That location is a nerve center of connectivity in Manhattan, notes Enoch Lawrence, a director in the Capital Markets Group and co-head of the Sports & Entertainment advisory group at Cush- man & Wakefield. The tech companies that have located in and around that Hudson Square area and near Google are primarily driven by the access to that connectivity. “It is starting to be quantified now in terms of how buildings are being positioned and the type of tenants and rents that tenants are willing to pay to be in that type of environ- ment,” Lawrence says. 32 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE According to the Deloitte Commercial Real Estate’s 2020 Outlook, respondents be- lieve tenants are willing to pay a rental pre- mium to be housed in smart buildings. For- ty-three percent believe tenants would pay a 6 to 10 percent premium to be in a smart build- ing, while a quarter believe tenants would pay 11 to 15 percent more. “There is some real interest for landlords to look seriously at The old real estate mantra of location, location, location morphed into location, information, and analytics as the three drivers. Now we believe the new mantra is around location, experience, and analytics. —Matt Kimmel, principal, Deloitte further capital investments to upgrade their assets to drive that deeper tenant relationship or tenant experience,” adds Kimmel. In the past, third-party entities have generated revenue that could be staying with property owners. Owners have the opportu- nity to develop a master strategy to own and control the 5G deployment and network rights LAYING THE GROUNDWORK Discussions with property owners about 5G at this stage involves a lot of education of what 5G is, what different strategy options look like, and some of the do’s and don’ts in devel- oping a 5G strategy for a property or portfolio of properties. At the same time, technology is evolving rapidly, and there are a lot of un- knowns on how it will change behavior, busi- ness applications, and demand. “It is hard for the real estate industry to stay abreast of what the changes are, how 5G is being rolled out, how it monetizes things differently, and how it changes behavior,” Davis says. Most property owners are still in the early stages of mapping out strategies to man- age their own properties with 5G inside their building and their own 5G network. The first step for property owners is to evaluate current infrastructure and technology components. A significant amount of fixed cost has already been deployed for those buildings that already have good, modern fiber, distributed antenna systems and back-up power already in place. Step two is to build a strategic road- map and capital plan based on where you want to go with 5G. The strategy for a Class A office building in a downtown might be very different from a three-story office build- ing in a suburban office park, an apartment complex, shopping mall, or distribution and fulfillment center. “We are just on the cusp of where this is starting to happen,” says Lapsley. Once more 5G phones are in the hands of consum- ers and they can connect to a 5G signal, that’s when the industry is going to start to see what the demand really looks like,” he says. “What I would encourage decision-makers to do as they wait for that uncertainty to play out is plan for the case where you have the most options,” he says. “So, build sensible infrastructure that is going to be useful even in a world where there isn’t a lot of leasing demand for 5G.” Beth Mattson-Teig Business writer based in Minneapolis WINTER 2020

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