Over the past two decades, the wireless real estate market has experienced exceptional growth, fueled by surging wireless data demand, the implementation of advanced 4G and 5G technologies, and portfolio consolidation. This resulted in a near doubling of wireless infrastructure values by the close of 2022 compared to the landscape just 20 years ago.
However, 2023 marked a significant shift in the market story as the prolonged period of high interest rates and reduced capital expenditures began to temper site valuations. While the overall momentum has slowed, the industry remains optimistic, recognizing this as an opportune moment for strategic investment.
Industry Momentum Slows: A Strategic Shift to Lower Density Geographies
The industry witnessed a slowdown in momentum marked by the completion of major 5G updates by Q2. The focus is now shifting to deploying infrastructure in lower-density geographies with reduced capital expenditure requirements. This trend reflects patterns seen in past technology cycles and anticipates a more measured pace of expansion in 2024, both within the United States and on a global scale.
Navigating the Impact of Higher Interest Rates
While historically resilient to economic fluctuations, the wireless real estate sector is not immune to the impact of higher interest rates. Major mobile network operators (MNOs) and publicly traded tower companies responded with sizable layoffs and reduced network capital expenditures. These adjustments aimed not only to align with the reduced rollout pace but also to mitigate the impact of higher debt on their balance sheets.
The challenges extend beyond the wireless sector, affecting commercial real estate (CRE) owners as floating-rate loans approach maturity, property values decline, and credit standards tighten. According to a recent Deloitte survey of 750 commercial real estate owners and investors, nearly half of respondents anticipate worsening conditions in cost of capital (50%) and capital availability (49%) through 2024, up from 38% and 40%, respectively, last year. Indeed, if high interest rates persist in 2024, as most experts anticipate, property owners may feel compelled to sell, resulting in an increase in property supply and, consequently, cell site lease supply. This would further exert downward pressure on individual cell site valuations.
A (Proactive) Buyer’s Market Emerges
This is a time to be proactive and strategic. As we look to 2024 and search for the “soft-landing” we’ve all been hoping for, now presents one of the most opportune times for cell site owners. In a climate where the cost of debt is prohibitively high and challenging to obtain, liquidity becomes paramount. Cell site owners who are prepared to act quickly and decisively can access near peak values to acquire valuable assets at attractive prices.
