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Smart Building Insights

Smart Buildings Are Well Worth the Investment

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Designing and creating smart buildings is an adventure, exciting and bound for new forms of success for the owners, operators, and occupants. Alas, one of the major roadblocks to their proliferation is the upfront capital requirement smart buildings pose.

In the face of steep initial costs and murky timelines, the real estate industry is standing up smart buildings at a snail’s pace, which is incredibly regrettable. Smart buildings should be erected for many reasons, perhaps most crucially for the owners and investors: they can yield substantial returns, well worth the blood and sweat involved in the design and construction.

Rent It, Sell It, Doesn’t Matter

When people encounter a smart building for the first time, their mouths are usually agape with awe, their eyes wide with excitement once they see the seamless experience and capabilities. Whether it’s wowing a potential buyer or tenant, a smart building’s price tag instantly gets heavier compared to its dumber brethren.

A 2012 report from the Global Real Estate Sustainability Benchmark shows that “green” buildings, that is buildings with energy-efficient features and/or LEED certifications, have a much lower degree of risk and volatility. In fact, the statistics are quite kind to those who build green buildings:

  • 2-17% increase in resale value

  • 8-35% increased rental rates

  • 9-18% higher occupancy levels

  • 30% lower operating costs

  • 9% higher net operating income

To be clear, this is a six-year-old report on green buildings. The numbers are surely better for fully smart buildings, not just green ones, and technologies have greatly advanced since the survey was taken six years ago. Capabilities have grown and increased, yielding more savings and bigger profits for building operators.

Compared to standard office buildings, smart buildings command higher rental rates, but also draw higher-end tenants: big tech companies, large financial institutions, well-funded startups and nonprofits, and the like. Tenants like these have better budgets for office space, are less likely to break leases, and tend to be sedentary over the long-term, supplying much-needed certainty to smart landlords.

The upside to the unfortunately slow adoption of smart buildings is that there is an overwhelming scarcity in the market, which will feed universal excitement. This scarcity offers the first movers a high degree of flexibility in pricing and experimenting with the offerings, as well as justifiably higher rental fees since there wouldn’t be any other options in the playing field.

The Incredible Shrinking Cost

The other enormous reason to invest in smart buildings is their innate ability to perpetually shrink the costs of their own operation.

Most obviously, smart buildings offer new levels of energy efficiency, immensely important when one considers the scale of energy consumption by buildings (upwards of 40% of all primary energy use). Smart buildings not only offer energy efficiency at the onset of adoption, but intelligent building management systems will learn how to improve this efficiency to new heights over time.

And as smart buildings enter a more mainstream status, aggregate energy consumption declines and so too would energy prices as market demand falls. In lay terms, more smart buildings means smaller energy bills.

, this kind of green becomes that kind of green.

, this kind of green becomes that kind of green.

Not only do these benefits help the bottom line, they also confer gains to the environment. Lower energy usage means lower emissions and potentially more stable temperatures and climate conditions in the long run, making indoor climate control a less complicated process.

Many jurisdictions offer tax credits for LEED certifications and sustainable buildings. Once smart building adoption gains some traction, owners and operators could probably lobby for additional tax credits to curb the upfront costs of construction and overhaul projects, lowering barriers and further raising profitability.

Progress Is Your Friend

As a smart building is designed and constructed, it’s important to avoid the very common problem of making upgrades unnecessarily expensive.

In software, this is inefficient practice is known as “hard coding,” wherein the entire program must be altered to make changes. There isn’t a software engineer in the world who appreciates dealing with this problem and the same is true of building engineers trying to replace cables and windows.

When it’s time for upgrades, it’d be ideal if the process didn’t break the bank or cause long vacancies, killing the cash flow. It’s crucial to design the building in a smart way, so that future retrofits and upgrades can be cheaply and quickly accomplished. Doing so means that adopting newer, more cost-efficient technologies and integrating them into the building will be cheaper at the outset and bring down operating costs.

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A proper sensor array in a smart building can provide insight into its condition and the need for repairs – a pipe starts leaking and needs replaced, some masonry is cracking and needs filled in, or an elevator is stuck and needs repaired.

Catching these problems before they become headaches and instituting a thorough preventative maintenance program can save on a lot of costs on inspection, parts, repair work, and the secondary costs of jammed elevators or flooded bathrooms, all of which serves to lower operating costs.

Smart buildings may seem like expensive propositions, but they’re well worth the initial costs and practically pay for themselves through savings when compared to boring brick-and-mortar structures. Crafty investors and developers should jump in now before their competitors do, lest they lose first mover advantages and consign themselves to higher costs and stiff competiton.

Jonathan Goodwin