Why you should invest in making buildings smart

Inflation, soaring energy prices and increased operational costs are all currently threatening property investment. At the same time, new builds must demonstrate their worth by being socially viable – whether by improving urban spaces or attending to occupant experience – as well as environmentally viable, meeting stringent standards and climate targets.

Inaction now could jeopardise the sector's ability to adapt. Smart buildings – those that use the internet of things (IoT), AI, automation and digitisation – offer the best means of doing so, improving occupant experience and productivity. More importantly, smart buildings offer environmental and financial benefits that are essential to the success of businesses' long-term strategies.

Smart buildings have certain key advantages in this respect that weren't previously available. Automated controls can readily adjust a building's lighting, ventilation and air quality, for instance, improving occupant experience.

Proprietary IoT systems also enable building managers to know who's in the building, where they are, and in what numbers: a function that put people's minds at ease during the pandemic when health and safety were paramount. Meanwhile, engineers are empowered to work more efficiently; sensors recording lift use, for instance, reveal the best times to carry out maintenance.

It should be no surprise that greater comfort leads to greater productivity. Poor office lighting, for example, is known to increase the likelihood of headaches and fatigue; hardly an incentive to work. A study by the World Green Building Council shows that improved lighting conditions raise productivity by 23% and air quality by 11%.

By establishing occupant experience as a unique selling point, smart buildings reduce the risk of human error while supporting productivity. Furthermore, property managers can make use of the data that smart buildings provide to present a rigorous case for encouraging occupants back to the office.

But this isn't enough. Properties with poor environmental, social and governance (ESG) standards are likely to suffer what's known as a brown discount: as time goes on, the cost of retrofitting assets to meet green targets will increase to the point where those assets become financially stranded. As things stand, only 34% of UK businesses have smart tech installed in their buildings.

However, the global smart building market is projected to grow from $80.62bn today to $328.62bn by 2029. This growth will mean new entrants. New entrants entail competition; and competition means lower costs.

Emerging engineering companies – which often have their own proprietary technology – offer a more streamlined process than firms that opt for manual retrofits. The price of IoT chips has fallen and the building management systems (BMS) that rely on them are significantly cheaper than traditional BMS systems. Thus while it is imperative to retrofit older buildings, it is also becoming more cost-effective to do so.

All this presents a strong return-on-investment (ROI) case, which is already clear to many organisations: research shows that the top two factors influencing smart building investments in the UK are long-term savings, as cited by 57% of respondents, and minimising business risk at 51%.

Installing an energy automation system for $37,500 on a 4,645m² (50,000-square-foot) building, for instance, can now save $23,000 annually. A payback period of just two years is a strong incentive to invest now, before the spectre of brown discounts looms. What's sustainable environmentally is also sustainable financially, as green buildings enjoy rental premiums and lower vacancy rates.

This can be daunting. To test a smart building's performance means interpreting the data it produces, but by 2020 smart buildings worldwide had collected an astonishing 37.2 zettabytes' worth.

Help is available, however. The RICS International Building Operation Standard, for example, offers a form of self-assessment by which the relevant data can be used to measure performance in certain key areas such as talent retention, social value and environmental integrity.

Coupled with existing assessments such as B Corp Certification, therefore, property managers have a compelling social case for adopting higher and higher standards – and here, too, the ROI prospects remain strong, because organisations can save up to 15% of their annual capital asset spending by optimising buildings.

Markets are unpredictable, as recent political events in the UK have shown. The worldwide chip shortage is also affecting IoT supply chains, with 80% of global manufacturers facing challenges.

For now, however, smart buildings are a smart investment, heralding the socially, financially and environmentally sustainable cities of the future.