Infrastructure for the growing digital economy, which are in both real estate and infrastructure portfolios, is expected to continue to grow in 2020.
Real estate investors, especially those with real estate investment trust portfolios, are finding that their exposure to digital real estate is expanding.
As of Dec. 31, niche sectors accounted for 53.2% of the equity market capitalization of the FTSE Nareit All Equity REITs index. Cell towers and data centers REITs accounted for 22.6% of the index's $1.2 trillion equity market capitalization. In its annual global outlook report, LaSalle Investment Management notes that emerging real estate sectors including data centers and cybersecurity have the potential to earn higher returns, even in a slow-growth economy.
"The roll out of 5G and 5G-enabled handsets will be ushering in another up cycle of growth in the (digital infrastructure) sector," said Ben Jenkins, CIO of Digital Colony Management LLC.
At the moment there is uncertainty around the T-Mobile and Sprint merger, which together represent one-third of the market, Mr. Jenkins said.
"One way or another, there will have to be significant investment in networks. ... 5G requires a significantly denser network design," he said. "There will be new macro towers — or what most people think of as traditional cell towers — and many small cell antennas, primarily in urban areas. Each existing cell tower will have to be modified so it can handle 5G."
Digital Colony invests in the physical infrastructure end of 5G development. Mr. Jenkins said there are increasingly software aspects to 5G, although he doesn't think Digital Colony will invest in direct-to-consumer 5G applications.
"There will be an explosion of application development, and utilization will require enormous investment. Already venture capitalists have been repositioning themselves for 5G," Mr. Jenkins said.
The expansion of 5G will impact everything from virtual reality and machine-to-machine learning to the internet of things and autonomous vehicles, he said.
"Technology and 5G have impacted different fields and asset classes already," Mr. Jenkins added.
However, there is no question there has been a lot of capital moving into the sector and transactions could slow in 2020 even though 2019 could turn out to be a record year for the digital infrastructure sector, he said.
"It would not surprise me if 2020 is a little bit slower. It's more of the natural ebb and flow of the deal cycle. … Firms are taking a little bit of a breath to digest what they bought this year," Mr. Jenkins said.