The rollout of 5G mobile telecommunications networks around the world is more than just another opportunity for telephone companies to sell new contracts and new handsets to consumers. The low-tech world of brick and mortar is set to be transformed by the new technology.
The fifth generation of wireless technology, 5G is a standard designed to deliver data speeds greater than one gigabit per second and latency (how long it takes a device to respond to other devices over a network) of less than one millisecond. What this means in practice is that 5G is faster – up to 100 times faster than existing 4G networks – enabling the transfer of more information, such as high-definition video. In addition, 5G-enabled devices will have the ability to connect to 100 times more devices at any time.
This huge increase in ‘connectability’ is particularly significant for real estate as it enables the Internet of Things. IoT devices can be used to monitor and control the mechanical, electrical and electronic systems in buildings. A combination of sensors and controllers could be used to instantly adjust heating and cooling in an office building, for example.
Kevin Kincaid, group technology director at London-based property firm Grosvenor, says: “This means that a building can connect thousands of IoT devices at the same time, all giving real-time information on how they are functioning, which in turn allows property managers and commercial real estate owners to really understand how their buildings are operating. In addition, 5G connections require much less energy – up to 90 percent less – allowing enhanced battery life for connected devices.
“As more of the building becomes connected, this will lead to lower energy consumption and operational costs. Lights and temperature can be automatically adjusted depending on occupancy, usage and external factors, and operational equipment can automatically log faults or proactively log maintenance calls.”
Good for returns
Faster and more efficient building management will boost returns for private real estate owners and also help them improve their sustainability performance, which is becoming increasingly important for institutional investors.
In South Korea, the first country to launch a 5G network, SKT, a telecommunication company, opened a 5G-based smart office in Seoul’s CBD. In this smart office, there are sensors on ceilings, parking areas, vending machines, corridors and even in bathrooms, which will collect data for AI analysis in order to run the building more effectively for the company and its employees.
The benefits of 5G-enabled smart buildings are not limited to the newest and shiniest developments, says Kincaid. “It will also add value to older assets, though you will still need to retrofit IoT sensors to equipment to take advantage of the connected devices, the bandwidth and speed of 5G will reduce – and potentially remove – the requirement for fixed-line installations into buildings. Tenants will also be able to use 5G where previously they relied on fixed-line connectivity into the building for fast connectivity.
“5G antennas are also much smaller than 4G, so it could be easier to get a 5G antenna onto a building where permission may not have been granted for its 4G counterpart. In addition, due to 5G having reduced energy consumption requirements – 90 percent less than 4G – connected devices could be battery-powered, thus enabling easier retrofits of buildings without costly hardwiring of sensors.”
The efficiencies gained in smart buildings can be scaled up into the development of smart cities, where IoT sensors and controllers can use real-time data to manage traffic, waste collection, pollution and numerous other parts of the life of the city.
Management consultant McKinsey & Co describes smart cities as those that “put data and digital technology to work with the goal of improving the quality of life. More comprehensive, real-time data gives agencies the ability to watch events as they unfold, understand how demand patterns are changing, and respond with faster and lower-cost solutions.”
However, smart city technology is not just about the city management; smartphones can put instant information about transport, health services and safety directly into the hands of citizens. The data generated by 5G-powered smart devices will also feed into city planning and development, so will be important for real estate investors too, giving them more tools for quantitative analysis.
“The key attributes of 5G – low latency, low energy consumption, high speed and the ability to have a high number of connections simultaneously – will remove significant technological barriers in smart city initiatives. Healthcare, safety, energy consumption, people’s commute times will all be positively impacted by the smart city initiatives,” says Kincaid.
Amy Pan, director, global data and information management at broker JLL, says: “Imagine a case where the injured person in an ambulance would be able to whiz through normally heavy traffic thanks to smart traffic lighting and automated traffic control.”
She notes that a number of global cities are pushing ahead with smart city initiatives which will be boosted by 5G technology, including New York, London, Shenzhen, Beijing and Tokyo.
However, she says: “It is important to watch smart city initiatives in some of the more progressively minded cities, such as New York or Singapore in the absence of extensive 5G coverage. While 5G, at its full potential, could be a game-changer for a lot of things, a city does not necessarily require peak 5G to become more operationally efficient in its effort to improve the quality of government services and citizen welfare.”
One of the most exciting aspects of 5G is its role in autonomous vehicles. “Autonomous driving will increase as vehicles are able to communicate with each other and with other connected devices in the cities,” says Kincaid. In particular, the low latency of 5G networks means connected devices can communicate much more rapidly, which will make autonomous vehicles much safer.
The potential impact of autonomous vehicles on real estate is substantial. It is generally accepted a city with autonomous vehicles would need less car ownership and see fewer vehicles on the road, as they would be used more efficiently. This would reduce the need for car parking spaces and for roads. For example, Singapore estimates that 12 percent of its land is taken up by roads. For a small city-state, this is significant and could be even more so for more land-constrained cities.
Progress is ongoing
While the potential effects of 5G on real estate are considerable, they are also still some way from being realized. The first 5G network in the world went live in South Korea in April this year and it has since been followed by networks in China, the UK and several European nations. The US has a number of limited networks already but, like all countries, it will take time for 5G networks to be rolled out across the nation and it is estimated that only one-third of the US will be covered by 5G networks by 2023. Many nations have 5G rollouts planned for 2020, but it will take time for networks to grow, with the most rapid development expected for richer, smaller nations.
JLL’s Pan says: “It is generally expected there will be two major phases of 5G’s evolution. The first phase, which is already in progress, will manifest itself in faster connectivity for consumers. The second phase will focus on delivering infrastructure to enable speed, capacity and near-instantaneous machine-to-machine connections. When we talk about the potential of smart buildings and smart cities, this will materialize during the second phase of the 5G build-out.”
There is more cold water to be poured on the idealized 5G future, says Pan. “There are still many variables which the industry needs to figure out before this sort of smart building revolution becomes a reality. Cybersecurity will be a challenge in these networks, for example.”
Nonetheless, it would be wrong for real estate investors to dismiss 5G as something to worry about in the future. Research from UK property advisor Cluttons found that only 39 percent of UK office landlords understand what 5G is and how it works on a practical level. However, nearly half of office tenants would pay more to lease an office building with better data connectivity and 72 percent said offices with poor connectivity will become obsolete in the future.
John Gravett, head of real estate management at Cluttons, says: “There is a strong commercial argument for greater investment in connectivity in buildings and we are seeing positive moves from landlords who are taking the initiative, rather than leaving it to tenants, who now expect good connectivity to be a given.”
A towering opportunity
For 5G networks to operate with the high speed and low latency that will empower smart cities and smart buildings, they will need new antennae
Kevin Kincaid, group technology director at private real estate investor Grosvenor, explains: “As 5G uses higher radio frequencies than 4G, the distance 5G signals travel is much less, which means that many more antennae are required. This provides an opportunity for building owners to create a revenue stream through leasing the space required for the antennae to 5G operators.”
The US already has three real estate investment trusts which invest in telecommunications masts and the largest, American Tower, owns and operates 170,000 cell towers in the US and overseas.
However, not everyone is convinced that 5G antennae will be a revenue-earner for real estate investors. Amy Pan, director, global data and information management at broker JLL, says: “While some new towers will be built, the majority of the net increase will consist of small cells, which will typically be the size of a pizza box, and anchored on existing public infrastructure such as utility poles. Therefore, I am not sure if there are revenue opportunities for property owners.”