Turning Your Build Portfolio into Smart Build Portfolio

Demand for a specific class of building continues to grow. A smart build generates almost 8% higher yields per square foot, versus local competition.

Lukewarm outlooks on the commercial real estate sector for 2024 make it paramount to identify how competitive outliers are racing ahead. For one, a Smart Build considers:

• Occupancy well-being
• Limiting output costs
• Reducing emissions

That’s why the smart building is essential for a well-considered building portfolio. Key drivers of its popularity include energy efficiency, sustainability, health and safety, and operational optimisation.

Here’s the challenge; Smart build demand is currently outstripping supply.

This could place non-domestic building owners on the cusp of something advantageous. But just what value return is there to be had from smart retrofitting?

Here we explore the benefits of converting an existing build portfolio into a smart build portfolio, as well as taking a look at the steps to retrofitting with smart technology.

Sections:

1. Demand for smart build real estate
2. How do rental values compare for smart buildings vs traditional offices
3. Where to begin with smart enablement
4. Step-by-step guide to smart build retrofitting
5. Future trends in smart build retrofitting

The demand for smart build real estate

Global commercial real estate services and investment leader CBRE publishes its UK Real Estate Market Outlook annually.

In its office sector report, a clear ‘flight to quality’ was documented in 2023, with demand for the best quality, best located most environmentally sustainable buildings outstripping supply.

The trend is said to reflect the fact that occupants are using their buildings to attract employees into the office in a hybrid working environment. This trend is expected to continue into 2024 and beyond, with RTO directives.

As well as creating a more comfortable, healthy and secure working environment, smart buildings play a vital role in helping businesses achieve their sustainability goals. This is what can place them in the realm of ‘best quality’ real estate.

According to Johnson Controls’ annual Energy Efficiency Indicator survey, over half of organisations plan to increase their investment in renewable energy, energy efficiency and smart building technology. And 79% of respondents said that data analytics and machine learning would have an extremely or very significant impact on buildings.

Net zero targets – the pressure is building

As Paris Agreement and other legislative obligations draw closer, businesses are under increasing pressure to hit net zero targets. We know that buildings are responsible for around 40% of global energy consumption and carbon emissions. This has unearthed scrutiny, and opportunity, within existing built environment stock.

Over 70% of commercial buildings in England were constructed prior to 2000. The UK Green Building Council says:

“this means the majority of non-residential buildings will face the need for retrofitting to meet net zero targets.”

“More than just legislative obligations”

Creating buildings that are resilient to future trends and evolving social and economic demands warrants consideration. As does ensuring buildings remain user-centric and investible.

So much of this revolves around energy efficiency and sustainability. Factors that can be addressed by smart building technology.

Smart building technology provides access to accurate, real time energy usage data. And when you know how and when energy is used within a building, you can take control of energy consumption. And that’s a valuable place to be.

Smart, Internet of Things (IoT) and artificial intelligence (AI) based technologies can help reduce energy consumption. IoT sensors for example will control heating, ventilation and lighting based on occupancy. AI automations will adjust settings in line with changing environmental conditions. Resource waste drops as a result.

Smart build demand on the up

UK market trends and forecasts indicate a significant increase in demand for smart buildings in the coming years:

• The market for smart buildings is expected to grow at a compound annual growth rate (CAGR) of 26.5% from 2023 to 2030.
• The UK market specifically is poised to grow at a CAGR of 9.2% between 2021 and 2027.
• The global smart building market size was estimated at $69.80 billion in 2021 and is expected to reach $201.16 billion by 2031.

So here lies the demand. The problem is lack of supply. But what’s behind it? It could be:

• Uncertainty around new and changing legislation and targets
• Smart build retrofit costs – bringing existing buildings up to standard involves considerable investment
• The slow pace of technological adoption across the built environment

Factors like these appear to be contributing to the imbalance of smart building supply vs demand.

New smart build vs smart retrofitting

So what’s stopping tenants seeking out new build prime real estate that’s been smart designed from the ground up?

The main challenge is that demand is vastly overtaking time to build. But what’s holding things up?

• Planning constraints and delays
• Labour shortages
• Supply chain disruptions
• Persistent inflation
• Rising interest rates

Despite a 1.1% rise in January 2024, construction output in the UK is estimated to have dropped 0.9% in the three months prior. Declines in output were also commonplace throughout 2023.

There is also the argument that smart retrofitting is a less carbon-intensive process than new build construction.

Smart buildings vs rest of real estate – how do rental values compare?

The CBRE UK Real Estate Market Outlook report relays that rental growth is expected in all UK office markets in 2024 at the prime end of the market and that the best located buildings offering ‘exceptional amenities and access to outdoor space’ will see super-normal rental growth.

Smart buildings feature interconnected sensors, automated systems and data analytics. Everything works together to optimise property management, reduce waste and cut operational costs.

Not only does this strengthen the bottom line, it also lifts the overall value of the real estate asset. So it becomes a more attractive investment prospect.

Beyond cost savings, smart buildings enhance the tenant experience by creating more comfortable, efficient, secure and healthy environments. These features could be filed under the type of amenities that command higher rental rates.

Smart buildings = healthy buildings = better investment prospect?

Healthy buildings – those with good indoor air quality and lighting conditions and sufficient ventilation – have become important for organisations keen to attract people back into the office and appeal to top talent.

But research from Massachusetts Institute of Technology (MIT) reveals that healthy buildings in the United States also provide landlords with a better return on investment.

Rents at healthy buildings are said to get between 4.4% and 7.7% more rent per square foot than other similar buildings in the same location that are not certified under official healthy building standards such as WELL or Fitwel.

The Pacific Northwest National Laboratory also found that healthy, high-performing buildings we were $115 per square foot in a 10-year Net Present Value (NPV). One case study even demonstrated a 300% return on investment for workplace wellbeing programs.

More insight comes from the CBRE Continental Europe research report which explores the relationship between sustainable building features and value.

The report suggests that office buildings with sustainability certifications earn a 6% rental premium over non-certified peers.

Smart buildings enable the collection of data at source. From energy efficiency to carbon output and resource usage, information that was previously unobtainable or challenging to collate is now available on tap. And that means achieving sustainability certifications has become a whole lot easier.

Build portfolio to smart build portfolio – where to begin?

Those feeling daunted by the process of smart build retrofitting can be forgiven: there is a lot to consider.

This is why choice of technology and implementation partner is important. With the right guidance, technical capabilities, solution-finding and problem-solving expertise, the outcome is more likely to deliver tangible ROI and achieve objectives.

Let’s look at creating a smart build portfolio, one step at a time:

1.     Assess building condition and specification

A look at the current state of the building portfolio is the first step. Elements to examine include:

• Building age and condition
• Current infrastructure
• Existing technology systems
• Current energy efficiency levels
• Planning constraints, e.g. Listed Building or Conservation Area

Using appropriate surveying methods, data will be gathered on the current physical condition and performance of each property.

2.     Ascertain long term goals and other strategic considerations

This step involves looking at the broader strategic considerations that will inform the core decision-making process around the smart build investment.

• Define long term objectives for each property – e.g. reducing operating costs, enhancing tenant satisfaction, regulatory compliance, increasing yield/asset value.
• Familiarise yourself with relevant existing and upcoming legislation and industry standards – e.g. energy efficiency requirements, net zero targets, sustainability reporting requirements and data privacy.

Staying informed about legislation and standards is crucial during the smart transition process for many reasons:

Compliance: Regulations and standards evolve. Non-compliance can lead to penalties, fines and legal action.

Risk management: Understanding the regulatory landscape helps mitigate the risks associated with failure to manage environmental sustainability, cybersecurity and data privacy.

Operational efficiency: Adherence to standards designed to promote energy efficiency will support building sustainability goals and reduce operating costs.

Tenant satisfaction: Standards compliance demonstrates a commitment to providing secure, safe, healthy and sustainable environments for tenants. Meeting or exceeding standards can enhance tenant satisfaction and increase renewal rates.

Future proofing: Anticipating regulatory changes ensures smart build investments remain effective long term. It also helps future proof assets.

3.     Set a roadmap

It may be that the journey to smart build implementation involves a phased approach. This will depend on available budget and resources.

Prioritising objectives and calculating where the best returns will come from is therefore an important step in setting the project roadmap.

Another important step is organisation-wide stakeholder engagement, consulting with:

• Tenants
• Facility management teams
• Property / estate managers
• IT and cybersecurity managers
• Existing technology vendors
• Security managers / suppliers
• Finance departments
• Legal and compliance teams
• Sustainability teams

Why is stakeholder engagement vital during the smart build road-mapping process?

Aligns objectives: Priorities, perspectives and requirements will vary across each stakeholder. Involving them in the roadmap will ensure their needs are considered and that the overall strategy aligns with organisational goals.

Taps into expertise: Technology vendors, estate managers and tenants bring individual expertise and insights. Technology vendors offer specialist application and software knowledge. Estate and facilities managers understand the operational aspects of the buildings. Tenants provide feedback on their preferences and needs. For the most value-added outcome, collaboration is the key.

Encourages buy-in: Early stakeholder engagement fosters support for the proposed transition. Feeling included and heard, stakeholders are more likely to advocate the success of the smart build project.

Reduces risk: Early consultations help anticipate challenges. This allows mitigation strategies to be put in place to address them proactively.

4.     Prioritise interoperability

The IoT-connected workspace supports a positive tenant experience.

Sensors monitor indoor air quality, temperature, lighting, occupancy levels, energy usage and machinery condition. They link desk booking systems so employees can easily find a comfortable place to work. Keep track of stock levels.

Sensors also permit and track access, delivering a real time view on occupancy and activity levels. Rich data is generated, making it possible to identify trends and anomalies and make informed business decisions.

But for all this to happen, and for the true value of the smart building to be realised, it takes robust integration of all the individual devices and sensors.

That’s why the highest levels of smart build interoperability and centralised control are so important.

The answer is a Master Systems Integrator. This is a critical element for the complete harmonisation of all building networks. It makes the smart building truly smart. And because everything is centrally connected, the value of the generated data ramps up significantly.

Their core objective is to co-ordinate and commission the smooth operability of the individual data networks, so that they form a single smart building solution with optimal operational efficiency.

The Smart Spaces MSI also assesses the legacy building management system to carefully plan and implement security measures for new and existing converged networks. This ensures all the building’s services are safeguarded from external and internal attack.

Regular audits and reporting allow the MSI to efficiently act on data received to improve security performance. The service also keeps building owners up to date at the project integration stage, as well as monitoring functionality during and after commissioning.

Smart build retrofitting – a step by step guide

It’s important to approach the smart build retrofitting process systematically. The unique characteristics of each property require due consideration. As does the need to prioritise investments that offer the greatest impact and value.

The smart build process can be broken down as follows:

1.     Address current setup

• Conduct a thorough assessment of the property’s existing infrastructure, technology and systems.
• Carry out energy audits or building assessments to gather data on energy consumption, environmental conditions and occupancy patterns.
• Identify the type and age of current equipment, for example HVAC systems, lighting and security, and communication networks.
• Assess the performance and condition of each component. Determine whether any upgrades or replacements are required.

2.     Identify areas for improvement

• Based on the current setup assessment, identify areas where smart tech could improve efficiency, comfort and functionality. For example, reducing energy waste, enhancing security and safety, improving occupant comfort and productivity and optimising space usage.
• Prioritise the areas for improvement that will best support return on investment, performance and long term objectives.

3.     Choose suitable smart devices

• Research and choose smart devices and systems that fit with your areas for improvement, and that meet your specific needs and goals.
• Consider factors such as:
  • Scalability
  • Compatibility with existing infrastructure and other smart devices or platforms
  • Ease of installation, use and maintenance
  • Budget

• Choose devices with functionality that’s important to you. This might include:
  • Automation
  • Energy monitoring and management
  • Remote monitoring and control
  • Integration with third party or bespoke platforms or services

4.     Installation process

• Create a detailed installation plan setting out the steps, timeline and resources required to implement the smart build.
• Coordinate with building occupants, property managers and other stakeholders to minimise disruption and ensure a smooth installation.

5.     Integration and Testing

• Following installation of the smart devices and systems, they will need to be integrated into the property’s existing network and infrastructure.
• Once settings have been configured and connections established, it’s time to conduct thorough interoperability testing between different devices and systems.
• Comprehensive testing and validation will demonstrate whether the smart technology is functioning as intended and meeting performance requirements.
• The training of building staff, property managers and occupants in the use of the smart devices and systems is a crucial final step which will help get the most out of the retrofit.

It is worth considering the value to be added by collaborating with smart building technology specialists with an in-house software / master systems integrator team.

They will:

• eliminate the risks involved with interoperability
• Guide you step-by-step through the smart build retrofit process
• Ensure you meet your overall objectives, whilst adhering to your budget and ROI goals

Future trends in smart build retrofitting

Smart buildings are poised to play a pivotal role in supporting sustainability in the built environment. Their ability to deliver tangible ROI and enhance the overall value of assets is already starting to prove itself.

As technology advances and demand for the smart-enabled building escalates, we can expect to see further integration of IoT devices, artificial intelligence and machine learning, and advanced data analytics into smart building systems.

This will further enhance operational efficiency. Creating more opportunities to cut energy consumption and reduce environmental impact.

Here’s how we see advancing technology shaping the future of commercial real estate as an enabler of sustainability and tenant experience:

Advancements in IoT

As the Internet of Things (IoT) continues to evolve, connectivity, interoperability and functionality of smart building systems will accelerate.

• IoT platforms and protocols will become more standardised. This will push cross-device and system communication within the building ecosystem to become even more seamless.
• Combined with innovations in sensor technology, this will support more accurate real time data collection across a range of building operations.
• Emerging IoT applications, such as asset tracking, personalised occupant experiences and predictive maintenance, will present fresh opportunities to further optimise building performance, enhance user experience, and reduce operational costs.

Integration with Renewable Energy Sources

As demand grows for energy efficient buildings, interest in integrating renewable energy sources will burgeon.

• Solar panels, wind turbines and geothermal systems will be increasingly integrated into smart build retrofit projects.
• Advanced energy management systems will dig deep into the abilities of IoT and data analytics to optimise the generation, storage and consumption of renewable energy within the built environment. Grid reliance will fall, and carbon emissions will follow suit.
• As the concept proves its worth, there could be more financial incentives, innovative financing models and regulatory policies to support the adoption of renewable energy sources in building retrofits. This in turn will make them more economically viable.

Enhanced Data Analytics

One of the most valuable elements of the smart building, data analytics plays a crucial role in unlocking insights and optimising operational performance.

• With advancements in data analytics, we’ll see better and faster scrutiny of significant sized volumes of IoT-generated data.
• Predictive analytics algorithms will combine historical data mining with AI-powered machine learning to anticipate equipment failures, identify energy saving opportunities, and optimise building operations.
• We will also see prescriptive analytics providing actionable recommendations and insights to building managers. This will guide decision making and resource allocation, further boosting efficiency, reducing risk and optimising budgets.

Integrating Artificial Intelligence

The smart technology of the future will see AI technologies such as machine learning, computer vision and natural language processing increasingly being integrated into smart build systems, delivering benefits to stakeholders organisation-wide.

• AI technologies are able to automate processes, enhance user experiences, and improve decision making.
• AI-driven energy management systems optimise building operations by dynamically adjusting lighting, HVAC and other systems based on weather forecasts, energy prices ad occupancy patterns.
• AI-powered predictive maintenance solutions analyse equipment performance data to proactively detect anomalies, schedule maintenance tasks and predict failures. This reduces downtime, and prolongs asset lifecycles.
• Intelligent building automation systems draw on AI algorithms to learn occupant preferences and behaviour patterns. In response, they deliver personalised workplace comfort settings, enhancing productivity in the process.

Smart build retrofitting… the route to creating a resilient, sustainable valued-added portfolio with added tenant appeal

As the process of smart build retrofitting evolves and emerging trends are embraced, commercial property owners face exciting opportunities.

The chance to support sustainability, enhance operational efficiency, and create more resilient buildings that meet the progressing needs and expectations of occupants and stakeholders is ripe for the taking.

The demand for smart building supply is likely to surge as investors and tenants recognise the financial, environmental and social benefits.

The successful portfolio owner will be the one who prioritises the integration of smart technology, positioning themselves as competitive and appealing in the commercial real estate market.

Yes, there are obstacles to overcome in transforming existing buildings into smart buildings.

But with a strategically thought-out plan, a diversely skilled system design and implementation team, a comprehensive understanding of the individual needs of the building, and full stakeholder collaboration, valuable outcomes can be achieved.

Smart Spaces is a smart building technology platform built on Internet of Things and artificial intelligence. Supported by the skill of its dedicated development and implementation team and Master Systems Integrator, it has the ability to transform existing buildings into value-added, sustainable, future-proof assets.

To discover how you could contribute to the growing demand for smart building supply with the expertise and support of Smart Spaces, please get in touch.