(Photograph courtesy of Siemens AG).
Smart Buildings on the Rise
New research released today suggests three-quarters of the United Kingdom's property professionals expect to gain from tech-enabled real estate, although significant obstacles to the widescale adoption of smart building technologies still remain.
New research released today indicates three-quarters of property professionals in the United Kingdom expect to gain financially from the migration to tech-enabled real estate, although researchers also found the country is still a decade away from realising the full range of benefits provided by smart building technologies as significant obstacles must be overcome.
Whilst six out of every ten (59 per cent) property professionals think smart buildings will deliver business gains beyond energy efficiency, three quarters (74 per cent) think it will be up to a decade before challenges in capturing and accessing the data that fuels such developments can be resolved.
The findings are revealed in The New Real, a report by Charles Russell Speechlys and Longitude based on quantitative and qualitative interviews with more than 270 senior developers, landlords, occupiers, advisers and investors.
For 40 per cent of those interviewed, the opening of new revenue streams will be one of the most significant gains from smart buildings over the next ten years, with three quarters (72 per cent) expecting to achieve financial gain from using data collected by the built environment. However, a quarter are yet to take any form of action to adapt to the development trend.
Just 14 per cent claim to have taken ‘significant’ action, with the majority (61 per cent) either only just now considering what they might do, or taking small steps.
Four main legal and commercial challenges were identified by the research as potential obstacles to a smart building revolution in Britain.
1) Valuing the future of smart buildings
While more than 70 per cent see opportunity for revenue growth through the data that smart buildings can provide, half remain unable to quantify it. Further, almost three in five landlords and developers are experiencing challenges in delivering a return on investment from their smart real estate assets. Changes to valuation models and leasing structures are predicted as a result.
- Two in three (65 per cent) say smart buildings’ ability to capture valuable data will increasingly be factored in to valuation models, including three in five investors and three in four landlords.
- Almost two thirds believe that new ‘public benefit’ metrics, such as in relation to peoples’ health, will be factored into investment decisions. However nearly three in four (73 per cent) find it challenging to quantify the gains smart buildings provide for improved employee health/wellbeing.
- 67 per cent of funders and advisers think they will need more data about buildings’ technology capabilities in future to assess investment and lending risk.
- Two in three landlords, occupiers and developers believe all-in-one fees for rent, utilities, business and technology services will grow more and more popular, and over half, (55 per cent) think that there will be an increased demand for more flexible lease terms from occupiers over the next five years. 68 per cent of occupiers, landlords and developers say future leases must be more flexible about co-sharing and subletting space.
2. Developing new partnerships and collaborations
In order to get to grips with the prospective ‘smart’ benefits on offer, some 56 per cent see a need for new collaborations, with indications that we may see a significant rise in associated M&A activity. However, there are broader concerns about the future role of innovative technology businesses in the property sector.
- Half of respondents say that acquiring businesses with ‘smart’-related skills is an important part of their growth strategy, while, specifically among those already taking action, some 65 per cent are currently seeking to establish new partnerships with technology providers.
- Among those taking action to adapt to smart buildings, 85 per cent are concerned about the legal risks of such partnerships.
- Half (50 per cent) think multinational tech giants, such as Google, will have a disruptive impact on commercial real estate in the next 10 years by taking business away from traditional property businesses.
3. Managing building obsolescence
A staggering 80 per cent of industry is worried about building obsolescence as a consequence of the smart building revolution, rising to 91 per cent among landlords.
- Changing technological needs will be the driving factor of building obsolescence among existing stock according to 59 per cent of industry who consider technological change more impactful than energy needs.
- “Trophy” headquarters will become less desirable for future tenants according to 54 per cent of occupiers and 52 per cent of developers.
- 63 per cent, nearly two thirds, think pre-21st century office and retail buildings will struggle to retain value. This is highest among developers at (72 per cent).
- One third (33 per cent) of funders are seeking to future-proof their investment portfolio to mitigate building obsolescence and as many as 40 per cent are actively considering how best to respond to the risk.
- Over one third (37 per cent) of developers are actively considering how to respond to the risk of obsolescence, with a further third (31 per cent) already taking action to future-proof their business.
4. Managing data privacy and cyber security risk
Data security of businesses in smart buildings is identified as a significant risk.
- Nine in ten (87 per cent) occupiers and building owners are concerned that the increased use of smart systems in buildings may increase the risk of businesses being hacked through the building.
- More than half (55 per cent) of those interviewed say data protection issues arising from increased use of smart systems is a significant risk for their businesses over the next five years. This concern is highest among landlords at 69 per cent.
- Half of property professionals (49 per cent) think there is no clear understanding on the ownership of data among the different organisations involved in capture, processing and analysis.
Commenting on the research findings, James Carter, Managing Partner of Charles Russell Speechlys, said: “Whether you are an owner or occupier, a builder or developer, or a technology provider, the built environment offers real opportunities for the forward thinking. In this report, we have explored the gains on offer and how they are likely to be exploited in coming years. Through a combination of deep sector expertise and clear legal insight, the report analyses the gains and opportunities and shows where some of the key legal pressure points lie.”
For more information, please visit www.charlesrussellspeechlys.com.
Research partners Longitude Research and Sapio Research undertook an in-depth programme of quantitative and qualitative research across the commercial real estate sector.
- Between July and September 2016, 273 respondents were surveyed from the UK’s commercial real estate sector
- Survey respondents were drawn from corporate occupiers, landlords, developers, lenders, investors and advisors with a specific interest in commercial real estate
- 53 per cent of respondents were at C-suite level, with the remainder at director or senior management level
- 45 per cent of respondents were from organisations with revenue of £250m+.
- In addition, over 30 in-depth interviews were conducted with leading experts drawn from real estate, tech, engineering, construction, consulting and academia.