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Smart buildings: more than technology

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There is a common misconception that intelligent buildings are purely a technological consideration. In fact, while there is certainly a technological aspect to the concept, they can be much more than that. Smart buildings can also be viewed as a long-term strategy to better understand the relationship between the built environment and its occupants while driving savings and efficiencies.

What makes a smart building?

EY - 4 Pillars

The implementation of a long-term intelligent building strategy will far outlive the useful life of any specific technology. A successful strategy is one of communication, not only between systems but in fact between systems and the people monitoring those systems and implementing the data collected for its highest and best purpose.

The smart building allows owners and operators to better understand occupant needs and behaviors with the multiple goals of enhancing both wellbeing and productivity while simultaneously saving operational costs and increasing building efficiencies. In essence, smart buildings can be a wise and forward-thinking investment.

We explore these issues more in our series of publications below.

Contact us

Josh Herrenkohl
Global Real Estate, Hospitality & Construction Advisory Services Leader
Ernst & Young LLP
+1 212 773 3302

Steve Teubner
Smart Buildings Solution Leader
Ernst & Young LLP
+1 312 879 6983

Christoph Ehrhardt
Global Real Estate, Hospitality & Construction Transaction Advisory Services Leader
Ernst & Young Real Estate GmbH
+49 (711) 9881 19560


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A smart building can be measured by how well the various systems communicate and how the usage data is aggregated, analyzed and applied to building performance

What is a Smart Building “Ecosystem?”

What exactly does it mean when we say, “Smart” or “Intelligent Building?” A truly smart building can be measured by how well it responds to the long-term needs of the asset’s investors and owners and the immediate and ongoing needs of its occupants.

A smart building can be measured by how well its various devices communicate, how the usage data is aggregated and analyzed and then applied to building performance. It can be measured by all of these considerations as much as it can be measured by its technologies.

Smart buildings are an ecosystem, a dynamic entity with many devices, “talking” to and depending on one another, sharing data and responding to the above-mentioned needs. Key to this complex interaction of software and hardware is the human element, the overriding “voice,” of guidance and direction that points all other systems toward those goals.

If a smart building can be defined by the logic of the ecosystem and the strategy of the stakeholders’ goals, it can also be seen as a highly tailored initiative. Every application, every property, is different and thus, every successful smart building design reflects those specialized parameters.

At its essence, a smart building can be seen as a long-term solution to highly specialized needs supported by a strong degree of communication and data sharing.

How can smart buildings enhance occupant experience?

All real estate occupants can gain by ownership’s understanding of their needs and comfort to create building systems to support both.

Most commercial real estate is populated by captive personnel as well as visitors. Whether they are there by choice or expectation, a smart building strategy that encompasses not only energy efficiency and the building envelope but also all of the factors that contribute to health and wellness, downtime and, ultimately, productivity can be one of the foundations of a loyal population.

An essential part of engendering that loyalty is the way building systems support the task at hand. For an office worker, it could be dedicated heads-down work or open, collaborative meetings. For a mall owner, it could be the comfort of shoppers and the promotion of its retail tenants.

The hospitality and healthcare markets are particularly dependent on the seamless delivery of building services. Whatever the real estate sector, the goal is loyalty – the expectation of a certain degree of satisfying performance.

Technology certainly is making that easier today than ever, especially in the advancement of such concepts as the Internet of Things. But as always, the conversation cannot stop at technology.

In the midst of the ever-changing advancements and capabilities of systems and devices, the overriding message concerns understanding the needs of the specific market. Despite differences in sector and personal need, that understanding is the unifying driver of a smart building strategy.

How can smart buildings drive operational efficiencies?

Building automation systems (BAS) are a necessary component in optimizing the operational efficiency of commercial real estate assets. It is helpful to think of such systems as the combination of hardware infrastructure with communications networks to foster system interactions, improve overall operational performance and, ultimately, increase ROI.

In other words, hardware alone does not make a building smart. From an operations standpoint, a smart building is the result of aggregating the data produced from these systems in a platform where thoughtful analysis can occur. Significant efficiencies can then be found through fault detection and resolution, as well as improvements in the occupant experience.

Case study

Darrell Smith, Director of Facilities and Energy at Microsoft, noted that fault detection and resolution is one of the primary keys to achieving sought-after improvements in ROI. Prior to the implementation of such capabilities, standard resolution practices demanded the presence of an engineer. Smith reported that, within that scenario, Microsoft engineers were spending 80% of their time as firefighters and 20% of their time in their true capacity as engineers.

After implementation, the global technology giant realized USD $240,000 in energy savings in a 30-day timeframe – in just one campus. Furthermore, analytics proved that 48% of the issues identified across their portfolio could be resolved within 60 seconds, a major savings in staff usage.

Operational efficiency is one important piece of a dynamic smart building strategy. It does not reside in a silo, disconnected from the other essential BAS pillars: a better customer experience; energy efficiency; and a more sustainable environment.

Rather, it can be considered part of the ecosystem of overall building performance, a key element to a holistic approach to enhancing the occupant experience and, in the process, improving the return on investment.

Commercial buildings represent one of the globe’s most prolific users of energy, accounting for 30% to 40% of energy consumption."

How does a smart building ecosystem deliver energy savings and value?

It should come as no surprise that commercial buildings represent one of the globe’s most prolific users of energy, accounting for 30% to 40% of energy consumption. Further, that is set to increase 50% by 2030.

Energy management at the asset level is about future sustainability and capacity management, not only of those assets, but truly, of our macro environment. As resources become increasingly strained, usage strategies are likely to grow as important initiatives for governments and for the investors, developers, and owners of individual assets. Data suggest the importance of a long-term view when choosing energy efficiency investments.

According to the United Nations Environmental Program, “LEED certified and Energy Star-rated buildings versus non-rated buildings had 8% higher effective rents.” A properly managed smart building ecosystem can achieve those premiums and still afford tenants savings as high as 27%, according to Morgan Stanley’s Institute for Sustainable Investing.

We have provided similar savings to its clients worldwide. In just one example, we worked with a global beverage manufacturer struggling with energy costs that were 12% of total production outlays. Our teams approached the issue with an eight-pronged strategy that included a corporate-wide energy and water sustainability program and leveraging technology as a tool for visibility and awareness. Not only did the client exceed its five-year, $10 million energy reduction targets, but it was also honored by the Canada Energy Conservation Leadership program for those improvements as well as for its reduction of greenhouse gasses.

Clearly, energy management is a good-sense initiative, not only for business, but also for cultural and environmental reasons. In that way, energy management should be seen as an important part of any smart building ecosystem.

How can sustainability strategies impact investor ROI?

In the past few years, much light has been shed on the subject of renewable resources. Given the impact commercial buildings can have on the environment, investors of all stripes, from REITs and insurance companies to private investors, are embracing assets that have sustainability strategies in place. Therein lies the link between environment and smart buildings.

Smart building technology can help manage and enhance sustainability compliance and improve asset value. Like virtually all capital expenditures, the ROI will vary across property types. However, the returns on these technologies can generally be seen within two years.

Case study

Real estate assets built and managed sustainably – with building automation systems in place to monitor and manage issues such as energy, water and waste – tend to outperform their traditional counterparts. As a result, investment firms like Morgan Stanley are factoring in key sustainability performance indicators along with more traditional KPIs to get a better handle on long term asset outcomes.

The firm reports a reduction in capital expenses due to 20% faster lease-up rates for sustainable buildings compared to their conventional counterparts as well as a 3% rent premium and a 2% increase in occupancy rates. Also, sale premiums rose between 10% and 30% on buildings with sustainable certifications.

Linking sustainability into the smart building ecosystem to maintain and enhance compliance performance is a complex undertaking, marrying the internal investment criteria of key stakeholders and dictates imposed by outside regulation. But it is becoming evident that the rewards from all perspectives – ecological, investment and regulatory – well outweigh the challenges.

There is a common misconception in the commercial real estate community that minimizing the technological capability of a physical asset or the business in general will in turn minimize the threat of cyber attacks.”

How important is “cyber-readiness” to real estate owners?

Technology is all around us. Likewise, so are the threats that come through hackers and viruses, worms and other means of compromising the integrity of the systems we all have in place in our businesses and personal lives.

There is a common misconception in the commercial real estate community that minimizing the technological capability of a physical asset or the business in general will in turn minimize the threat of cyber-attacks. This is not the case.

We advise many of our global clients to help create a more robust cybersecurity approach that extends to all areas of their business, well beyond smart building systems, to inform strategies of operations, staffing and customer experience. There are no areas of business that cannot be compromised by an attack. Therefore there is no area of business that cannot find added protection in a well-planned, all-encompassing cyber-strategy.

Increasingly, a company’s cyber-readiness is also becoming a key issue in determining future business partnerships. For instance, insurance companies are reevaluating their investment parameters based in large part on the security measures in place. Furthermore, for public companies, Moody’s is now factoring cybersecurity into their ratings. For these reasons, we recommend annual cyber audits to reassess both the current threat environment and a company’s overall degree of protection.

The technological complexity of our businesses increases every day. Real-time agility in the face of cyber-attack and resilience against these threats can instill business confidence and enable their growth and opportunity.

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Contact us

Josh Herrenkohl
Global Real Estate, Hospitality & Construction Advisory Services Leader
Ernst & Young LLP
+1 212 773 3302

Steve Teubner
Smart Buildings Solution Leader
Ernst & Young LLP
+1 312 879 6983

Christoph Ehrhardt
Global Real Estate, Hospitality & Construction Transaction Advisory Services Leader
Ernst & Young Real Estate GmbH
+49 (711) 9881 19560

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