Understanding Cell Tower Lease Rates

Cell Tower Lease Rates

How Cellular Site Value Is Determined

Each year, thousands of individuals, businesses, and organizations are contacted by wireless carriers about placing cell sites on their properties. Because the opportunity to have a cell tower on your land is inevitably a financial one, one of the first questions that many tower site owners ask a cell tower lease consultant is: how much money could I earn from a cell tower lease?

Unfortunately, there is no simple answer. Like the lease rates for other types of business leases, cell tower lease rates are determined by a variety of factors, many of which are beyond the scope of prospective cell tower site owners. Here are just a few to keep in mind:

Geographic Location

The geographic location of a prospective tower site is strategic to the carrier’s business plans in one way or another. Some locations are sought after because they would allow the carrier to improve existing services, while other locations are needed to expand the company’s service area. The reason why the carrier is interested in your site can impact how much rent it would be willing to pay.

For example, expanding the service area is likely to earn a carrier more revenue than enhancing services where cellular service is already available. Consequently, the company may find it profitable to rent your site for a highly competitive rate after it considers the long-term revenue potential for the location, especially if no other sites in the area would offer the same advantage.

real estate value impacts cell tower lease rates

Real Estate Value

Cell tower lease rates are also impacted by the value of real estate on which towers are located. Naturally, the carrier would like to place its towers on the most cost-effective real estate, but the company will step up to the plate and offer a competitive lease rate for high-end real estate if building a tower in that location would foreseeably increase the  bottom line by a significan t margin.

As an example of how real estate value impacts the rent rate, a carrier would likely pay far more to locate a tower on vacation property in Malibu, California, than it would to construct the same type of tower on rural land near Gary, Indiana. This is one reason why owners of cell tower sites are recommended to have their property professionally valuated before signing a lease contract.    

Size of Tower Site

The size of a tower site is another property-based variable that determines cell tower lease rates. On average, cell towers and the utility structures that go with them require about 2,000 square feet of space. Still, there are also situations in which the carrier wishes to rent significantly more land in order to build additional structures that help facilitate maintenance operations.

Because the size of the tower site could affect the saleability of the property where it is located, prospective lease owners are generally advised to keep the tower site as confined as possible. However, the property owner rarely has the experience to judge precisely how much space is needed. In this situation, it can be beneficial to consult a seasoned cell tower lease advisor.

cell tower lease rates 101 

Market Conditions

Another variable that impacts lease rates is market performance. This is why it is important to predict lease rates using the latest market data, not outdated information that had been compiled months or years ago during different conditions.

Unless you have professional experience in negotiating cell tower leases, you will likely lack the training and resources necessary to determine how much rent you should receive based on current market conditions. That’s why it can be helpful to work with a cell tower lease advisor who has your best financial interests in mind.  

Zoning and Permitting

When it comes to the zoning and permitting requirements for cell tower sites, wireless carriers tend to prefer two types of situations: liberal and flexible zoning and permitting requirements and cell tower sites that are zoned for commercial, industrial, retail or agricultural use instead of residential use.

Liberal zoning and permitting requirements can make it easier to begin and finish construction, while sites that are zoned for commercial, industrial, retail, or agricultural use tend to be less time consuming to develop than residential sites because the location for the cell tower is often developed in a way that minimizes the work a carrier must perform to prepare the tower site.

Construction Cost

Because wireless carriers are contractually responsible for paying all construction costs associated with erecting a cell tower, how much they pay to complete the project can impact their flexibility to offer a highly competitive lease rate. Common construction costs include land development expense, utility bills, equipment purchases, and payroll expense, to name a few.

This is why carriers prefer to build towers at sites that are easy to develop, particularly ones that already have a flat space for the cellular installation and an official roadway that leads to the construction site from a nearby thoroughfare. If you own this type of cell tower site, you can use the money the carrier saved on construction as a point of leverage during lease negotiation.     

cell tower lease rates explained

Ease of Access

As mentioned above, wireless carriers are more interested in tower sites that are already easily accessible, rather than sites that require lots of land development and the creation of a road that leads to the tower site. In addition to helping the company save money on construction costs, sites that are easily accessible can also make it easier for the carrier to perform tower maintenance.

Property owners that want a cell tower on their property sometimes decide to make the prospective tower site easily accessible by using their own resources. If you are considering taking this step, be sure to consult an experienced cell tower lease advisor to assess whether your investment would yield a favorable return on investment (ROI) considering all variables. 

Surrounding Population

Cell tower lease rates typically trend higher in areas that are heavily populated than in areas that are sparsely populated, even when demographics are the same in both types of locations. If the carrier plans to build a cell tower to expand the service area, it often stands to gain millions or even billions of dollars during the lease period by bringing thousands of new customers into the fold.

Placing cell towers in heavily populated areas to improve the quality of existing cellular services is also financially beneficial, as it helps a carrier to retain the customers it already has, and attract new ones away from other wireless carriers. If your tower site is located in a populous area, your cell tower lease advisor will leverage this fact to negotiate a competitive lease rate.   

Cellular Calls Per Hour

According to statistics from wirelessestimator.com -- an online publication that focuses on news in the cell tower industry -- the number of calls that a tower facilitates per hour can have an impact on the lease rate. For example, cell towers that are located near secondary highways and generate 600 calls per hour have been known to generate less than half of the lease income that towers that are built in prime locations and receive 1,600 calls per hour.

Wireless carriers argue that, due to the increasing popularity of voice/data convergence and increased minutes of cellular device use, judging the value of the site based on calls per hour is often an inexact science. They have a point. However, because the number of cellular communications a tower facilitates does impact the revenue of the carrier, the predicted volume of calls per hour is often used as a negotiating point for cell tower lease rates.   

Additional Antennas

Because the carrier owns the cell tower it builds, it may decide to rent space on the tower to additional carriers. However, because the carrier is essentially using your property to earn additional revenue, you should always receive a percentage of the revenue that the carrier earns from renting tower space to other wireless carriers.

In some cases, a carrier doesn’t decide to rent tower space until the lease period is well underway. Consequently, a clause that permits you to earn a percentage of the revenue that comes from additional cellular antennas should be written into the service contract from the beginning. If it is not, you may have a hard time acquiring a percentage of the extra revenue. 

Rent Escalation Clause  

Rent escalation clauses increase the amount of monthly rent you receive from the carrier from year to year. To offset the cost of inflation, escalating rent between two percent and five percent annually is a common practice. Naturally, the carrier would like to sign a contract that doesn’t account for inflation, but they routinely agree to contracts that provide for rent escalation.

The true value of rent escalation can be seen over the course of a long contract. For example, if a contract is slated to last ten years and contains no escalation clauses, the owner of the tower site is likely to miss out on thousands of dollars that could have been earned by including a rent escalation clause. A cell tower lease advisor will help you create a fair rent escalation clause that accounts for predicted inflation.   

Loan Interest Rates

Most major wireless carriers have more than enough capital to pay for building a cell tower upfront. However, depending on its financial objectives, a well-qualified carrier may decide to secure a loan to pay for the project instead. If it does, the interest rate for the loan will almost certainly factor in to the monthly lease rate that the provider believes is fair to pay.

For the sake of wealth building and wealth management, wireless carriers typically establish a cost budget for each cell tower installation. If a carrier pays for a tower upfront instead of securing a loan, it decreases the amount of capital that the company invests in the installation long-term, and thus increases its flexibility to pay competitive cell tower lease rates.  

Lease Negotiation Process

How the lease negotiation process is conducted has one of the biggest impacts on the lease rate you receive. Wireless carriers have lease advisors on their side during the negotiation process; having advisors on your side, too, helps to level the playing field.

If you are looking for a skilled cell tower lease negotiator, Lease Advisors is here to help. Our cell tower lease specialists have over 100 years of combined experience in the industry, and vigilantly negotiate competitive cell tower lease rates for each customer. To learn more about our services, call us today at (877) 418-5238, or fill out the contact form on our website.

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Lease Advisors
Lease Advisors is the premier cell tower lease consultancy firm in the world, offering the most competitive payouts for cellular site buyout and billboard lease buyout transactions. Our lease consultants work exclusively with cellular and billboard lease owners, assisting them with cellular lease acquisitions, billboard lease acquisitions, consultations, negotiations, and various other issues that accompany owning a lease asset. Our firm prides itself on our extensive experience and knowledge of the ground lease market, and an unyielding commitment to quality service and maximum value for our clients.
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