5G’s Direct and Indirect Effects on Real Estate

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5G is coming, and it’s promising to affect industries from gaming to agriculture and from retail to public safety. One sector that is often mentioned but generally understated is real estate. There are numerous effects, both direct and indirect, that 5G will have on both commercial and residential real estate. We will first cover the technological changes that make 5G different from cellular previous generations and then outline the effects on real estate.

What makes 5G different from previous generations?

5G simply means “fifth generation” of cellular technology, and with that comes not one, but multiple technological advancements. These advancements and changes provide lower latency (learn more here), increased bandwidth and better connectivity. Some of these changes, however, lead to an increased need for hardware to support the signals.

5G leverages radio frequency signals on a much higher spectrum than previous generations. While the latest LTE frequency range ranges from 600 MHz to 6 GHz, telecom companies implementing 5G will have signals still within the previous range, as well as higher frequency signals in the 24 GHz to 60 GHz range.

Get to the point

What makes this different is that higher frequency signals have a shorter range. Where 4G and past generations could suffice with a few large cellular towers that covered thousands of people, 5G will require a much more densely packed network of hardware. 

Enter “small cells”. Small cells are miniature cellular “towers” that transmit and triangulate the signal. With a range of only 500-5000 ft. (depending on the frequency and amount of interference), 5G will require hundreds of small cells in densely packed urban areas. Thankfully, small cells live up to the name and are not like the gargantuan cell towers we know today. In fact, these are the size and shape of a pizza box, and can be deployed on light poles and existing structures.

Now let’s talk about real estate

One of the most obvious effects of 5G on real estate is the amount of places these small cells will need to be deployed. At least in cities, most people will spend the majority of their time indoors. As signals have a hard time penetrating walls, it will be necessary for almost every commercial building to deploy a small cell. This will typically come in the form of a lease, where telecom companies work with building owners to lease space on the roof for a small cell. 

The real estate effects are not only limited to small cells. 5G will bring increased connectivity through the form of a massive Internet of Things. This will bring efficiency for developers who act and upgrade the technology for buildings. This should lead to improved margins and profitability. 

What about residential real estate?

Small cells won’t only be used in densely populated cities, but in suburban areas as well. However, the current trend across small cell deployments has been to leverage existing infrastructure such as power poles. There may not be a significant opportunity for homeowners to lease space on their own homes for 5G cells.

Residential real estate may be affected by more indirect effects of 5G. The first of these effects? Autonomous vehicles. As 5G brings the connectivity and ultra low latency that enables autonomous driving, some speculate that the increase in use of autonomous vehicles will result in a shift away from large cities to suburbs and less densely packed areas. This is due to the perceived notion that autonomous vehicles will cause less accidents on the road and vehicles will operate in sync, reducing traffic. 

Workers will also have enhanced connectivity while on the road, leading to the ability to begin/end their workdays from their vehicles. This makes a longer commute more manageable. In addition, the recent shift to increased remote work, along with improved connection speeds, may mean less time in the office altogether.

Other effects of 5G and autonomous vehicles on real estate

Jeremy Rifkin’s “The Zero Marginal Cost Society” (link) describes a futuristic world in which the costs of producing some goods and services becomes negligible. With this, ownership in some assets, such as a vehicle, becomes obsolete. This idea, mixed with the well-known “sharing economy” concept, paves a plausible path to a world where less vehicles are owned in densely populated urban areas. Instead, autonomous vehicles are utilized via automatic scheduling and simple ride-hailing to transport passengers.

What this could mean for real estate is a reduced need for parking. With more people using autonomous ride-hailing services, there will be a higher utilization rate of vehicles. After all, how many hours a week does your car sit in the parking lot? But this will translate to a reduced overall need. Some existing parking lots may be replaced by structures, and space in parking garages may be repurposed.

Last but not least, Virtual Reality

5G’s bandwidth and latency enhancements will make augmented/virtual reality more widely used across multiple industries. Real estate will certainly not be missed. VR will give the ability to view and tour homes, virtually, from brokerages or even a consumer’s home. This may translate to increased volume of viewing numbers of homes, which could have varying effects on purchase decisions. Perhaps with more consumers viewing homes they will go under contract more quickly. However, consumers may also feel that they can be more selective and under less pressure to commit from viewing virtually.

Virtual reality may also have effects on the short-term rental market for vacation homes. As users are able to take virtual tours, they will be able to select exactly what they want. This may also translate to a short-term spike in home renovations when this technology is rolled out as property owners will increase the marketability of their rental.

Summary

While some of the points above may be more speculative, there is no question about it. Real estate will be affected by the 5G revolution. As the world becomes more connected than ever before, there will certainly be even unforeseen effects to the way we live, where we live, and how we congregate.

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