New Propmodo Research report: 2019 PropTech Predictions in Review

How to Get Started With a Smart Building Technology Strategy

You know you need it, but where do you begin?

Smart building technology seems inevitable. More and more the idea of having a connected, intelligent building has been gaining attention from owners who seek to drive greater asset value, respond to expectations from tenants, and address a general desire to optimize and automate manual processes. 

The benefits are pretty obvious. Smart buildings can have improved financial performance while also differentiating the assets. Many real estate firms and other building operators realize significant cost savings and operational efficiency almost immediately once smart building technologies are put in place.  Moreover, billions of dollars are being invested in PropTech by both VC and large corporations. The maturity of the sector can be seen by the wave of merger and acquisition activity

But, it has become clear that not all real estate firms are making progress and adopting smart building technology at the pace you would expect. The reason is that many are unsure of where to start and how to establish a strategy to deploy these modern technologies. Of course, there is a good reason for the hesitancy on the part of some real estate firms. As a technology consultant I have seen all types of buildings employ endless combinations of technology. By doing so we have seen a number of things that can make technology adoption difficult. 

For example, KPMG’s 2019 Global PropTech Survey notes that while 58 percent of firms have a digital strategy (a number that is increasing), only 25 percent have a data strategy. This may limit the budget and time that a firm has to spend on smart building technology. KPMG also found that the biggest barriers to increased digital adoption in real estate are unclear ROI, low priority compared to other initiatives, and a lack of staff to drive the strategy.

Construction is the second least digitized industry, according to McKinsey. The real estate industry’s level of digitization is squarely in the middle compared to other sectors. This creates a backlog of “catch up” technology upgrades and integration/implementation costs just to enable the deployment of smart building technology. In many cases, these costs (money and time) are deal breakers. 

Another KPMG survey on real estate technology trends found that only 29 percent of firms are using data analytics techniques, and 54 percent do not have current plans to use them. Moreover, the report states that “robotics and artificial intelligence are not on the horizon for most respondents.”

Another barrier to adoption of smart building technology is the difficulty of identifying vendors within a fragmented market landscape. It seems like every startup says that that they have the best solutions but they often don’t connect easily with the existing building systems, which already have significant penetration. 

Even the phrase is a hurdle. In many cases, tenants are asking for smart buildings and smart building technology, but don’t know exactly what that means. This creates a breakdown in communication with property owners, who may be confused as to what their tenants actually are looking for. 

One of the most important things for tech adoption in commercial buildings is development and investment in a long-term strategy. Shen Chiu, Development Director at Investa, a leading Australian commercial real estate developer, notes: “if it was easy everyone would be doing it…but technology adoption, especially given the rapid pace of change, requires a growth mindset. A willingness to fail and an understanding that failure brings knowledge and opportunity. Knowledge of what didn’t work and an opportunity to pivot and try something new and potentially better.“

Echoing a similar perspective, Eric Roseman, VP of Innovation and Technology Ventures at Lincoln Property Company, notes a need for involvement and engagement across the organization when deploying new technologies. “It’s critical to empower those out in the field and couple that with a passionate executive change-maker. With field-level buy-in and a willingness to try new things, even if it means failure in an attempt, then you’re going to make something special happen.“

A common theme for many real estate firms that have been deploying smart building technologies for years: they recognize the risks and try to focus the scope of their initial experiments around a focused and definable problem. This minimizes the downside risk of an unsuccessful project. Conversely, these firms also recognize that without trying, they won’t realize any financial or operational benefits. Market research is a vital step, but the deployment of technology is what drives value and increases the firm’s level of education. 

One issue with learning about new technologies, especially those which may offer a step-change increase in productivity or value for a real estate firm, is that they typically sound great in concept but may not align perfectly with a given organization’s needs. While it’s easy, though time-consuming, to engage solution providers to learn about their offerings, it is not the best way to start a research and procurement effort. Instead, internal conversations with key stakeholders should be conducted to identify where there are problems that could be solved with smart building technologies. 

Certain potential, identifiable problems many buildings face include tracking energy consumption and reporting it to a third party, addressing an aging facilities management team staff, adoption of condition-based equipment maintenance procedures, or an automated way to bill tenants for energy use. Improving occupant experience, adopting flexible workspaces and attracting younger talent are all also common reasons for justifying technology spend. Once your organization has set down its priorities you will be much better able to assess the solutions on the market. 

Another core challenge with deploying new technologies goes beyond problem discovery and needs alignment: the solutions may be difficult to deploy based on a firm’s existing infrastructure or because of other considerations at the firm. Any real estate firm that is planning to deploy smart building technology needs to understand its internal requirements and “non-negotiables.” 

These considerations may include the time and cost to implement technology, or the existing level of systems and data collection required to get maximum value out of a category of solution. For example, there are still many buildings that use pneumatic controls, which may limit the value of advanced analytical solutions. Or, older building control systems may be costly to connect to. But, there are a variety of other constraints that each firm should review, and determine if they will impact the procurement process. 

More real estate firms are looking to deploy offerings that utilize open protocols, or provide an open data platform with application program interfaces (APIs) that can easily send data to other deployed or future platforms. Many smart building products support BACnet, for example, which is a leading open protocol for building controls. Real estate firms may also have requirements around data ownership (where data is stored, who owns the data, etc.) 

Firms are more able than ever to deploy technologies with no or low capital expenditure, preferring to subscribe to a software license that is aligned with the value delivered. Or, conversely, the firm may prefer to spend upfront to avoid ongoing subscription fees. Deployment time and overall level of effort can vary based on category of product and the specific solution. Real estate firms should determine how much time, and how many resources they can dedicate to a smart building deployment. It is important to remember that some offerings are technically robust, but less intuitive. Others are very intuitive but not as analytical. For many firms, there is a balance between helping staff learn to use the product and ensuring that it provides deep value. The best technology often has to do with a management company’s structure, staff and capabilities.

To ensure that all internal constraints are captured and considered, it may be appropriate to expand the team of internal stakeholders, perhaps including someone from IT or the finance office. These team members should have visibility into the budget and IT/cybersecurity review processes, and also can provide visibility on other constraints and non-negotiables when procuring new technologies for the business. The time it takes to work through these topics in the beginning should enable the process to move faster in later stages. The goal is to make the actual procurement process faster and streamline interactions while engaging with vendors. 

Kevin Kirk, Engineering Manager at Shorenstein, says that the firm has a focus on cybersecurity within its smart building procurement efforts, in addition to cloud-based technologies. “We’re thinking about smart buildings tied in with our cyber strategy,” he said. “We are installing a building network that is secure, that runs the current building systems such as automation, access control, metering, leak detection. All of that information goes onto a single network. So, one, it’s all secure, and, two, we have enough bandwidth available for the future. Moreover, we don’t know all the things we want to do or might do, but we think the future will be cloud-based, so we will need to get data onto the cloud and do something with it there.”

Goal setting is also important to define success at the early stages of the smart building planning process. Specifically, if a firm knows that manually reading meters for tenant billing is time consuming and costly, and it seeks to move more building technology to the cloud, it still should consider it’s desired end state. Do you want completely automated tenant bill generation, or just a significant savings on the manual meter read process, for example? The goal should be measurable, to ensure it can be achieved and then results and benefits can be quantified. 

The process of setting a goal also can help build out a value proposition and business case for a given technology procurement. To continue using the meter reading example: if the goal is to eliminate all manual effort to generate tenant bills, it should be feasible to measure the avoided costs of moving from a manual to automated process. In many cases, the upfront technology implementation costs may be moderately high, especially when including training and change management, but the ongoing costs are far less than manual processes. 

Moreover, getting from problem identification to a defined and desired goal can take time. In some cases, a clear and direct problem will have a pretty obvious goal, but in other cases there may be a range of potential solutions. Kevin Kirk of Shorenstein notes that some are more complex and multi-faceted than they might appear. Specifically, Kirk mentions leak detection technology, which can be used to identify when water is being wasted, but also can be used to avoid property damage and tenant inconvenience. Kirk notes that because water is generally very cheap, leak detection solutions have more value when they can identify and prevent property damage that might force a tenant out of a space during repair. But not all leak detection solutions can provide this value; some simply focus on detecting higher water utility bills.

Zach Robin, CEO of Hatch Data, whose firm provides building operations performance management software for commercial real estate, provides some insight based on working with hundreds of clients. He told me, “the most successful firms we’ve worked with to date have done their homework in advance, understood the needs of their internal stakeholders, and were able to succinctly communicate their objectives for deploying smart building technologies. As an example, many customers adopt the Hatch Data platform to proactively manage utilities expenses while others select us to provide their operations teams with better performance monitoring tools to ensure service-level predictability.” Once a firm understands its problems worth solving and any technology or organizational limitations, it will be well-positioned to define these realistic and valuable goals.

Only after problems are prioritized, internal investigations have been done and goals have been set is it prudent to search the market and identify vendors and solution providers. On one hand, smart building technology is developing and maturing all the time, so it is worth keeping an eye on market changes. But, this effort should be separated from direct procurement, which is driven by internal needs assessment and problem definition. An upfront internal planning steps described above is to make this phrase move smoothly. A significant stumbling block for many real estate firms is conflating open-ended market research with specific, direct solution procurement efforts.

Of course, the process of identifying a relevant vendor that solves an important problem may expand the list of solution requirements. For example, some smart building technology firms offer a managed service offering, which provides analyst time to help interpret data and suggest methods to resolve operational problems. Real estate firms may not list managed services as a key requirement, especially if they don’t know how much expert staff time they will need. But, given the availability of such a service, they may begin to consider managed services as a “nice to have” requirement.

Kevin Kirk notes that Shorenstein has an internal process to review any interesting technology vendors that fit their internal needs. “We have a technology review document. It’s four to five pages and that’s our starting point with a vendor. It includes questions about the value proposition, applicability, how the technology would be used at a property we own. We review the responses internally and decide to move forward or not. That’s our initial process. Then once we identify a technology, we identify the other players in the area. Then we start to compare. The research you do on three or four peer firms will help to identify the requirements for any technology you adopt in this space. This helps to identify the must haves versus the nice to haves. And you can pick some finalists based on who is doing what.”

Conducting research in a focused way and avoiding a lot of the misinformation out there in companies’ promotion and publicity. It may seem counter-intuitive, but it’s also likely to help your firm deploy a solution faster. Francisco Ruiz, Director of IoT for Oracle’s Real Estate & Facilities, provides some color on this point. “It’s critical for firms to determine what a smart building means to them before embarking on their IoT journey,” he explained. “With so many different technologies available, and ways to architect and secure them, the best plan helps you drive forward in a unified manner with measurable results. Ultimately, the solutions you select should align with the goals of your firm, taking into account your stakeholders input from real estate, IT and security leadership.”

Once the market survey and discovery process has wrapped up, the firm can develop a short list of vendors and begin an assessment process. Many firms have formal procurement procedures, which can be supplemented with questions about how each vendor can solve the firm’s defined problems and how each can help to meet predefined goals. It’s also important to use metrics in the assessment, such as “how much time can be saved on this process” or “how many hot/cold calls can be eliminated?” 

Pilot tests are another approach that can help assess how specific technologies perform in a real building. This can provide visibility, on a limited scale, into the deployment process and the outcomes and benefits to the business. However, pilots do require a significant level of effort for the real estate firm. Beyond supporting the deployment, the firm should also carve out time to use the products and assess how well the firm’s needs are met. Joe Du Bey, CEO of Eden, a workplace management platform and a marketplace of building services supports using pilots to establish relationships with new clients. Du Bey notes, “For new clients, both occupiers or landlords, we find the best way to get started is to start at one site. By piloting at one office location, our customers can discover the efficacy of our workplace SaaS offerings, such as modern ticketing or facilities management software, or begin to use our marketplace of services. Over time, we find our clients have a natural bias to having one system of record for their space, so they tend to deploy Eden over their remaining properties.”

Moreover, pilots do not always have to replicate a full deployment. In one recent instance, a firm seeking to collect real-time energy data from each of its offices conducted a limited pilot that sent each finalist vendor to a few locations to provide a detailed plan and budget for the hardware required for each site. Our team had already conducted an assessment of the existing metering infrastructure at each office, but wanted to know, in detail, if new hardware was recommended and how much each vendor would charge for the full hardware and labor. Each vendor was willing to spend a few days visiting a couple sites to have visibility on exactly how to collect energy data. And, since many buildings already had modern meters installed, the building owner had more confidence when certain meters had to be replaced. And, best of all, each vendor provided a slightly different set of recommendations, which enabled the building owner to compare and make an informed decision. This is not a traditional pilot, but trialing the implementation process, which was considered the riskiest part of the project, provided great insight to the owner.

Smart building technology has significant value for real estate firms, their operators, tenants and investors. Understanding the costs versus benefits are complex and time-consuming, however there is significant value to starting an internal effort to deploy these technologies.

Shen Chiu of Investa, notes that there are great benefits to those firms that invest in technology within their real estate assets, as long as there is a focus on quantifying the benefits and moving the organization, not just an individual or a team, forward. “A disciplined but exploratory approach can reap great benefits,” he said. The more a pilot is able to demonstrate successes, the better the sentiment on the next larger project. Good luck, it’s a rollercoaster ride, but one well worthwhile when you come out the other side.“

Zach Robin, CEO of Hatch Data, adds, “My advice to those waiting on the sidelines is this: the term ‘smart building’ isn’t reserved for the largest Class A office tower in any major metro. Any building can become a smart building. Small steps can be meaningful. All you need is a clear objective and a willingness to engage with a technology partner who can help you hatch a plan.“

Propmodo is a global multimedia effort to explore how emerging technologies affect our built environment.

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