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Tower real estate investment trusts
Driving the growth of the connected world
Back in April, I had the privilege to attend New York University's 22nd Annual REIT Symposium. It was enriching to listen to discussions of leading issues and trends affecting real estate investment trusts (REITs) from many top industry executives.
June 21, 2017
A blog post by Saurabh Mahajan, Real Estate manager, Deloitte Services LP
Among the many discussions, my key takeaway was the rapid expansion of diversified real estate property types. In fact, the one subject that intrigued me the most was the growth of tower REITs, which are essentially nontraditional REITs that own wireless communication infrastructure.
Over the past decade, tower REITs have increased their ownership of wireless communication towers in the United States.1 A large part of this can be attributed to telecom companies monetizing their wireless infrastructure assets.2 In addition to gaining market share, tower REITs have followed a multitenant model for each tower instead of single-user model followed earlier by telecom companies. This has not only helped tower REITs to increase asset utilization, but also improve profit margins—a fact that one of the speakers at the symposium confirmed.
From a return standpoint, tower REITs yielded 19.6 percent in the 12 months ended April 2017 even as equity REITs returned only 7.7 percent during the same period.3 In fact, tower REITs have outperformed equity REITs consistently over the past five years (see figure 1).
Figure 1: Comparison of index performance of tower REITs and equity REITs
Note: Index base 100 for both indices as of December 2011. Tower REITs represented 99.5 percent of the market capitalization of Infrastructure REITs index as of December 2016
Source: NAREIT, May 24, 2017
A growing demand for wireless infrastructure
However, this is not the entire story. In fact, the game could have just begun!
Most people have heard about such advances as 5G technology, the internet of things (IoT), and autonomous vehicles. What is the one common denominator across these technologies? It is the exponential data usage and need for seamless connectivity at any time and any place. Consider this:
- Globally, monthly data usage by smartphones is projected to rise from 1.4 gigabytes in 2015 to 8.5 gigabytes by 2021.4
- The global installed base of IoT devices is expected to grow at a compounded annual growth rate of 17.2 percent, from 15.4 billion in 2015 to 75.4 billion in 2025.5
- Deloitte’s analysis suggests that by 2020, the future of the mobility (FOM) ecosystem will need wireless connectivity for 0.6 exabytes of data every month in the United States.6 (One exabyte is equivalent to 1 billion gigabytes.) And by 2030, this volume of data could grow to 9.4 exabytes per month as FOM ecosystem expands and autonomous cars become more prevalent.7
As a result, the demand for wireless infrastructure is going to grow exponentially and tower REITs could be entering a phase of rapid growth. But is the existing wireless infrastructure ready to take on the anticipated demand? Due to its expected speed and bandwidth, 5G technology will require denser coverage through the placement of small cells or microtowers, as the equipment needs to be closer to users.8
Therefore, I think the key differentiator for tower REITs will be to identify and place microtowers at strategic locations, such as buildings within dense urban centers. So relationships with other commercial real estate owners could be valuable as buildings become popular locations for placing microtowers. In addition, tower REITs will need to effectively manage lease structures with new and diverse tenant groups in the future.
The demand for wireless infrastructure is going to grow exponentially and tower REITs could be entering a phase of rapid growth. But is the existing wireless infrastructure ready to take on the anticipated demand?
– Saurabh Mahajan
What do you think?
Will tower REITs play a key role in driving the growth of the connected world?
1 “Top 100 Tower Companies in the US,” WirelessEstimator.com, December 22, 2016.
2 Chris Bland, “Are You 5G Future Ready?,” NAIOP, Fall 2016.
3 FTSE NAREIT US Real Estate Index Returns, May 24, 2017.
4 Charles Keenan, “Infrastructure REITs Are Powering the Growth of Cloud Computing,” NAREIT, March 23, 2016.
5 IHS Markit. Information based on IHS Markit, Technology Group, “IoT platforms: enabling the Internet of Things” Whitepaper,
6 “Connecting the future of mobility,” Deloitte Insights, February 28, 2017.
8 Chris Bland, “Are You 5G Future Ready?,” NAIOP, Fall 2016.
QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The opinions expressed in QuickLook are those of the authors and do not necessarily reflect the views of Deloitte.
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