Smart buildings have been around for a while but recent policy changes and the development of new business models has led to increased interest amongst the property developer and investor communities..
On 31 January 2019, Howard Kennedy hosted its latest Economic Breakfast Briefing on whether the commercial real estate sector is making the most of smart buildings. The discussion was chaired by the Head of our Energy Sector Group, Jonathan Cohen. With buildings accounting for approximately 40% of total UK carbon emissions and the increased deployment of smart technologies improving the efficiency of buildings, he explained that this is a hot topic that is high on both the political and commercial agendas.
A huge thank you to our expert panel comprising Rupert Green of Lendlease, Angie Bara of Ensphere and Ioannis Orfanos of Green Value Associates. Set out below are some of their thoughts on the benefits and challenges of developing "smart" buildings.
How should we define a smart building?
With no definition of a smart building existing at law, it is hardly surprising that the discussion kicked off with the panellists discussing what, in their view, makes a building "smart".
Rupert explained that for Lendlease smart buildings offer the opportunity to gather data and gain insight into how a building is used in order to feed this back into the operation and construction of their buildings. Angie added that by using this data landlords can improve the energy efficiency of their buildings and improve the working environment for their tenants. Ioannis explained that being "smart" is not only about data and IT systems, real smart buildings have flexible spaces, are easy to reconfigure uses and more resource efficient (and thus sustainable) in the way that they are built and operate.
Why develop and invest in smart buildings?
Rupert explained that Lendlease use smart technologies "for the users, for the people" and he explained that employees are increasingly looking to work in different ways. Creating flexible smart spaces that can adapt to the needs of their users in a rapid, cost effective way are a great way to future proof an asset. He acknowledged that tenants are willing to pay more for buildings that are more energy efficient.
Using the example of The Edge building in Amsterdam – possibly the smartest building in the world with ceiling sensors that keep your desk at a desired temperature/humidity and espresso machines that remember how you like your coffee – he recognised that there is a debate about the usefulness of micro environments. However, he said that there is a huge benefit in the user being able to contribute to the fit out saying "at the end of the day, people like to feel connected". Lendlease use Wired Score (https://wiredscore.com/en/) to certify connectivity in their buildings.
Angie agreed that tenants prefer smart buildings – "they are more appealing in the market, the occupancy rate is faster, they attract premium rates, they reduce capital costs, tenants are happier so they stay longer".
Ioannis does not believe in a benchmarked and measurable green premium per se, rather a brown (non-green) discount for less resource efficient commercial buildings with location still being the key driver for tenants. He recommended making spaces more flexible, integrating data gathering devices and incorporating smart infrastructure in order to provide for future integration of low carbon energy technologies to enhance future income and protect the long term investment in a commercial building. "Data is now much more important for asset management" and buildings increasingly integrate other smart solutions such as charging points for electric vehicles all of which maintain the attractiveness and marketability of a building.
What are the challenges for developers and investors and how can such challenges be overcome?
The discussion turned to the challenges of making existing commercial building stock smart. Angie acknowledged there are more challenges involved in retrofitting existing stock, however, she said that there are some existing older buildings that are greener than new buildings. Rupert added that there are a lot of temporary solutions that can be incorporated into existing commercial buildings such as installing sensors that are not cost effective to put into new builds.
Ioannis also highlighted the data protection issues: "technology is improving to gather data at a fast rate but the data security problem has not been resolved". In his view, landlords have a responsibility to do the right thing and more advice is needed on how data can be best managed. Jonathan suggested that green and smart leases could incorporate clauses that govern how a tenant or user's data is used, which is something that our team can assist with.
- Rupert recommended a collaborative approach and early (pre-construction/during the design phase) engagement with the supply chain to check that they can deliver the developer's vision. He warned developers of getting locked into one smart technology, suggesting instead that they pick and choose technology suppliers for different elements of the building.
- Angie recommended speaking to occupiers and understanding their needs in the first instance so that technology is not installed that will become redundant or obsolete in the future.
- Ioannis recommended that all smart buildings should create adaptable spaces and focus on how the building can transform to meet new demands in the future.