Cell Tower REITs and 5G - Catch the Wave
With the growth in devices, in service and usage per device, industry forecasts project data consumption to rise by more than 30% per year. We are consuming more data, at quicker rates, on the move and more frequently. The continued roll out of 5G will not only increase download speeds and traffic capacity but increase the need for infrastructure to support the delivery of 5G coverage.
Why is this important and relevant to cell towers? Wireless carriers will need to partner with cell tower REITs in 2021 to expand their networks by installing more equipment on more towers. Due to the advances in the technology, download speeds are projected to increase from 10x to 100x that of 4G.
"Wireless carriers will need to partner with cell tower REITs in 2021 to expand their networks by installing more equipment on more towers."
In Europe, we anticipate strong growth potential from macro cell towers propelled by higher leasing volume. European telecom companies are unique in that they continue to develop their existing tower portfolios and raise capital to reinvest into their 5G network, leading to robust acquisition opportunities for REITs. Internal growth for cell tower REITs will be driven by embedded annual rental escalations, adding tenants to towers and increasing tower equipment density. We believe the sector’s high going-in cashflow yield, long weighted average lease term, and secular growth potential make cell towers a standout asset class.
In the U.S., small towers will play a critical role in delivering 5G coverage. Industry estimates suggest that the number of small cell towers will increase from 200 thousand today to 1 million in five years. We anticipate that small cells will need to be installed on streetlights and utility poles to act as a convenient relief valve to enhance coverage, cooperating with macro towers, when networks become too congested.
Overall, we predict small cell tower buildouts to increase as wireless carriers allocate more capital spending (CAPEX) to densify their networks. A national 5G network may take a decade to construct, resulting in multiple years of elevated annual wireless carrier CAPEX.
For a greater viewpoint of the REITs market, access our report here.