Today’s technology leaders enjoy numerous opportunities to source IT strategies and connectivity solutions to various points across the Commercial Real Estate (CRE) sector. Nonetheless, CRE is a unique industry where the confluence of diverging interests of many participants must be understood to successfully navigate the sourcing and procurement processes. Tenants, building owners, and service providers are distinctly motivated but also share many of the same goals.
Property owners and portfolio managers face an intensifying need to meet rising tenant demand for robust, high-capacity data connectivity. An organization’s capacity to “be connected” is among their most critical business prerequisites. Commercial buildings with limited connectivity infrastructures face the pressure of declining occupancy rates. This challenge has evolved to become a post-pandemic reality. Conversely, “smart” buildings that offer flexible, scalable network solutions have a significant opportunity to drive lease renewals and increased tenancy. Adept CRE organizations understand and embrace the need to equip their buildings with a comprehensive infrastructure suite of IT and network connectivity resources. Competent IT service providers learn to develop successful strategies to source their solutions accordingly.
Digital Infrastructure Impacts Tenant Retention
CRE has an opportunity to improve tenant retention and growth by investing in their customer’s experience. Since the early 2000’s, owners have focused upon the deployment of fiber access at their properties. They acknowledged the critical demand of tenants for connectivity to the eco-system of data communications networks and applications. Fiber network providers clamored to “light” commercial buildings where a determination could be made that potential “end-user” revenues justified the capital costs to “build-in” to those sites. Buildings “lit” with a fiber provider maintain a significant advantage over “unlit” properties. Similarly, structures lit with multiple, or diverse fiber networks, maintain a considerable advantage over buildings with a single fiber provider. Certification programs such as WiredScore are highly regarded and exist to recognize and promote best-in-class, digitally connected buildings across the globe. Strong WiredScore ratings are sought-after as they can directly affect a property’s desirability and lease rates. “Smart” buildings equipped with secure wi-fi, cellular connections, and building automation enjoy distinct advantages over lesser-equipped competitors in the same markets. These features drive desirability, tenant retention and higher real estate values.
In 2023, CRE is a complex environment influenced by a myriad of diverse market conditions. The market for fiber-based services has matured considerably. The trend to light buildings with fiber continues, although the opportunity and willingness of providers to make major capital expenditures diminishes as the number of providers in each building increases. Conversely, as the number of “lit” providers in buildings grows, so do the advantages of owners to better promote their building’s digital infrastructure in a commercial real estate market that is increasingly competitive. Notwithstanding, while the demand for services delivered over fiber remains strong, digital fiber is a highly competitive market and pricing has steadily declined.
A more recent quandary for CRE owners is increased tenant demand for better in-building mobile phone connectivity. Mobile connectivity and a robust mobile experience are crucial to contemporary business operations and tenant retention. The requirement for mobile devices to function with the same speed and reliability as connected desktop devices is present today and is rapidly approaching the importance of fiber connectivity in the office. As with the race to light buildings with fiber over the last twenty years, the pressure upon CRE to offer a robust mobile connectivity experience presents both opportunity and challenge.
Connectivity Challenges and Solutions for CRE
As the demand for mobile connectivity and mobile voice and data applications continues to grow, the cell tower infrastructures of Mobile Network Operators (MNO’s) are approaching saturation. There are three US wireless networks: T-Mobile, AT&T, and Verizon and their subscribership today is massive and growing. This near-monopoly alleviates much of the pressure upon MNO’s to expand infrastructure with more cell towers, even as their networks become saturated and user experience diminishes. Less ability to connect, slower transmission speeds, and dropped calls are the typical conditions experienced when accessing an over-saturated network. It should be mentioned that the increased use of low-energy glass and other construction materials can inhibit mobile connectivity to external cell towers.
To address mobile connectivity challenges, CRE and tenants have increasingly adopted In-Building Wireless technologies (IBW). IBW technologies include solutions that avoid and bypass the limitations imposed by the cell towers and building materials. Instead, they are designed to provide seamless availability of cell service to every corner of the office, or building. Distributed Antenna Systems (DAS) are the most prevalent in-building wireless options.
DAS are comprised of small, connected antenna nodes deployed throughout a building’s interior. The nodes are connected to a common source, usually a dedicated fiber link in the building, which then connects and directly terminates offsite, over a fiber connection, to the mobile carrier network’s head end. The advantage is a robust connection to a subscribers’ wireless carrier, that bypasses the limited capabilities of cell towers. DAS options range from full-building systems that offer an improved indoor experience to all tenants and public areas within range of the building. Other DAS options include solutions designed for a single tenant or floors and are limited to specific areas.
As DAS technology approaches widespread acceptance, there remains the looming question of who bears the cost to deploy. Commercial property owners are slow to embrace yet another costly building upgrade, especially as they face adverse market conditions and declining tenancy. In their minds, DAS may still be a “nice to have”.
There do seem to be signs of the softening of CRE’s position, especially when considering the impact on their bottom line. A commercial building in Brooklyn, NY recently commenced with the process to capitalize a full DAS system after it had been determined that the technology afforded a massive advantage over another site with whom they were closely competing for a lucrative ten-year lease. A perceptive leasing agent casually mentioned that the prospective tenant was dismayed by the poor cellular connection quality in downtown Brooklyn. Ownership avoided the need to make concessions in the lease price and is now leveraging DAS to promote additional interest in other available space in the building.
Until CRE embraces full DAS as an imperative, savvy technologists are devising other strategies to capitalize on tenant demand for robust mobile connectivity over DAS. One is the sourcing and deployment of partial DAS solutions. These smaller systems are usually provided by nimble, smaller, in-building wireless providers. The systems are not marketed to CRE but directly to end-user tenants in buildings where CRE has not deployed DAS. Some of these smaller DAS providers are willing to absorb the cost to build highly scalable infrastructure in certain buildings, then finance to the end-user tenant as an attractive OPEX model.
Digital connectivity is mission-critical for CRE and tenants alike. Understanding the available technologies and choosing the appropriate solution can be an overwhelming challenge. UPSTACK’s technology specialists navigate through the complexity. We collaborate with owners and tenants to forge cost-effective solutions that best support their business requirements and are mindful of their respective conditions. Our team understands the technology, the suppliers, and the various stakeholders—we can explain the technology side to the finance team and the financial side to the IT team, to bring projects in on time and on budget, and enable modern connected businesses. Contact us today to learn how we can help.