The Alchemy Of Smart Building ROI (And An ISE 2024 Recap)

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The Alchemy Of Smart Building ROI (And An ISE 2024 Recap)

This month I witnessed two milestones in the world of smart buildings. Both focused on the relative value, or by extension, the return on investment (ROI) of smart building technology. The first was an industry-wide event: Integrated Systems Europe (ISE) 2024 in Barcelona, which welcomed a record 73,891 attendees and provided enough audio and visual stimulation to last an entire year.

The second was a little closer to home: our webinar announcing the renaming of our practice area from Smart Buildings to Real Estate & Built Environment. As Mike Brooman, CEO of VANTI, put it in his presentation at the ISE conference, holding his phone aloft “people don’t call them smartphones, do they? We just call them phones”. We feel happily justified in this stance, as RIBA also announced its smart buildings overlay, clearly normalizing smart building as, well, buildings.

ROI is in profit, not penny-pinching?
Further emphasizing this shift, the ISE 2024 conference keynote speaker, Emmanuel Daniel (CEO and Founder of Alosanar), said “things that used to be cool are now basic requirements for a building” because now the real value, where the real ROI exists, is through improvements in user experience that “drive engagement and emotional outcomes”. This was the message of the first few slides of our webinar. Traditionally, the ROI of a smart building has been to increase efficiency, optimize operations and reduce costs. However, a relatively new view is coming to the fore: that building tech increases real estate revenue, occupant productivity and positive above-the-line outcomes for all types of building asset classes.

The rest of the ISE presentations went on to focus largely on how smart drives down costs. Erik Ubels, Senior Consultant at MetisReal, showed some incredibly detailed spreadsheets that his firm had produced detailing 300 line-itemed building technologies and a calculation of their ROI based on a wide range of metrics.

Taking a more general approach, Matthew Marson, Director - EMEA Advisory at JLL Technologies said that over five years most tech garners a three-to-one return in business efficiency. Michael Grant, Co-Founder and COO at Metrikus, added that incentives for FMs would speed up ROI in the adoption of smarter and more sustainable buildings. However, Karen Warner, UKIMEA Smart Building Business Lead at Arup, cautioned that incentives of, say, 5% per year can disincentivize FMs from taking more aggressive actions in year one – thus falsely holding back what might have been a more rapid cost, environmental and social impact.

Operational ROI isn’t moving the needle
At a certain point in this debate, one developer in the audience asked why should they invest in these technologies that offered operational payback when they would sell the property on completion? Operational efficiency becomes the new owners’ problem. So, for smart building tech to be installed at design stage, the tech must offer an experiential benefit that results in top-line revenue uplift for the developer. By changing our practice name to Real Estate & Built Environment, we feel we are taking one step closer to bridging this mindset gap, between real estate people who want to realize a financial upside and buildings people who want to control costs. The evolution of asset-manager-focused ESG standards such as GRESB, too, shows the increasing convergence between owner and manager priorities.

Turning those lead pipes into rental gold
If we get out of the weeds of the tech itself, and go back to the earlier point that a smart building is just a building, then the question becomes, what is the ROI of buildings full stop? Which must mean, “how well has the building met its purpose?” Given that its purpose is to satisfy the needs of users, then user sentiment should indeed be the primary measure of building value.

Back in our webinar, meanwhile, we highlighted that the costs saved and the benefits generated from a building come back to this ultimate purpose, especially if you extend this to look at the built environment as a whole system, rather than a single building or transaction. Within the goal of satisfying users’ needs, these structures – micro or macro – should be designed to provide safety, security, community and wellbeing (be that physical, social or financial).

Convergence of top- and bottom-line
The bottom-line value goes like this: saving energy and water and reducing waste saves money. It also increases building resilience, lowering risk of the bigger potential costs of significant property or human loss from other threats. At scale, this reduces climate risk and the associated costs to humans and businesses across the world. If the top-line revenue increase is realized through user experience resulting in increased property/rental value, that too can expand beyond the walls of the building to improve communities, increasing building and experiential value. Then, once this value extends throughout that building’s supply chain, to include even the person mining the marble for flooring on the other side of the world, you have created a global good that looks very similar to the outcome of following the implications of cost reductions.

So, determining smart building ROI is exactly the same as determining building ROI. And if you look at it that way, then real estate and our built environment have the opportunity to become a lot smarter.

Claire Stephens

Research Director, Smart Buildings

Claire Stephens is Research Director of the Smart Buildings team. With 18 years of experience in the sector, Claire is recognized as an expert in industries that make up the built environment, in particular, corporate and commercial real estate, and workplace and sustainability technologies. At Verdantix, Claire will be digging into building technology for building owners, occupiers and investors, focusing on how to support them in reaching their ESG objectives. Prior to her arrival at Verdantix, Claire launched Asia’s first corporate real estate, green building and building technology publications. She has also delivered full lifecycle real estate consultancy services covering a broad range of asset types in industries including financial services, oil and gas, pharmaceuticals, technology, consumer goods, media, retail and hospitality.