Is “Smart City” Hype Making Smart Buildings Happen?

If you are a commercial real estate (CRE) manager responsible for a portfolio of small-to-medium-sized buildings scattered across a widespread geography, take heed. The wave is coming. Smart cities are on the table, and before too long, only smart buildings will be deemed acceptable.

Does this sound like futuristic techno-hype to you? Or, have you already detected a change in the winds?

This article will kick off our discussion of three simple actions you can perform to avoid being caught in the storm. We will begin our journey with a 40,000-foot scan of the CRE horizon, to see what small-to-medium-sized portfolio managers should be aware of to successfully ride the coming wave. Next, we will discuss what technologies you must assess to prepare for the change. Finally, we will cover what initial steps you can take to position your CRE portfolio effectively for the upcoming smart revolution that is certain to disrupt the CRE landscape for decades to come.

For purposes of this discussion, “smart” refers to electronic systems and devices that are connected online, record data in real-time and are managed interactively to optimize outcomes. So, join me in the crow’s nest for a quick overview of the early indicators, and see if this smart building hype doesn’t add up to a serious review of your CRE portfolio.

Foreshadowing: Smarts Cities Imply a Coming Wave

According to a “Strategic Opportunity Analysis of the Global Smart City Market,” by research consulting firm, Frost & Sullivan, the smart city market is likely to represent a cumulative $1.6 trillion by 2020. The report defines smart cities as being built on smart “solutions and technology that will lead to the adoption of at least 5 of 8 smart parameters,” including energy, building, mobility, healthcare, infrastructure, technology, governance, education and citizen concerns.

Do any of these areas begin to apply to your CRE portfolio of small-to-medium-sized properties? My guess is that they likely do, and probably at least 5 of the parameters definitely apply. Think HVAC, lighting, security cameras, ingress/egress, refrigeration, computers and other electronic devices and systems. And don’t forget the smart devices used by building occupants. It all works together in a smart environment.

Gartner estimates that some 733 million connected things currently exist in smart city commercial buildings alone, with that number expected to rise to over one billion by next year. In fact, Gartner estimates that by 2020, the number of connected things in smart cities overall will crash through the 9.7 billion marker.

Major Investors Mean Major Movement Ahead

The drive for “all things smart” is attracting major investors around the globe, and CRE portfolio managers would do well to take note.

Cisco has committed upwards of $250 million to “internet of everything” (IoE) startups, as part of its $2 billion portfolio in disruptive technologies. Cisco is currently involved in smart city projects in Barcelona, Bengaluru, Chicago, Hamburg, Nice, San Jose and Songdo, South Korea.

Panasonic is investing in Fujisawa, a smart town venture located in Japan. General Electric is partnering with San Diego and Jacksonville, Florida on smart city technology. IBM, Oracle, Intel, Ford Motor Company and Microsoft are all on board in various smart living projects, and the list goes on.

Fifth Wall Ventures, perhaps the largest real estate technology-specific fund ever, has already raised $212 million to advance the cause, silently investing nearly $60 million in seven up-and-coming, real-estate-focused, smart technology companies.

Small-to-Medium-Sized CRE Accounts for the Lion’s Share

If the push to advance smart cities is not an indicator of the shape of things to come, then what is? Cities are defined by buildings, and CRE focuses on those buildings.

The U.S. Energy Information Administration reports that more than 70 percent of all commercial buildings in America are under 10,000 square feet of space. This includes restaurants, retail shops, warehouses, storage buildings, worship spaces, service centers and other subcategories that make up the lion’s share of urban life as we know it. As cities become more and more populated, the pressure to digitize, modernize and otherwise upgrade small-to-medium-sized CRE properties is on.

According to United Nations data, 66 percent of the world’s population will be centered in urban areas by 2050. City residents consume approximately 75 percent of the planet’s natural resources. Ergo, city planners, governments and citizens are wont to reduce their footprint, cut energy consumption and make a wiser use of available resources through the implementation of smart technology. And, small-to-medium-sized CRE is where much of urban life happens.

A New Population of Eco-Conscious Consumers Demand It

The urgency to adopt smart technology becomes even more acute as you consider that Baby Boomers are no longer the dominant generation. Millennials, with their penchant for technology and desire for a more sustainable, green, eco-friendly environment now dominate the working class. They are now the second biggest generational group on the planet, having officially eclipsed Baby Boomers in 2015.

In their wake, come the largest population group, “The Plurals,” or “Generation Z,” depending on what analyst group you subscribe to. The Plurals now make up 25.9 percent of the US population, surpassing the Millennials at 24.5 percent. They represent the next wave of key influencers.

This generation grew up connected to digital devices. They are characterized as “resourceful, self-motivated and driven.” Their post-9/11 upbringing and protected childhoods make them more conservative than Millennials, more concerned about planetary issues, and more willing to express loyalty to organizations that “get” the connected, digital life and promote eco-friendly, socially responsible causes. They are not afraid to take action.

How do you position your properties to cater to this group? It’s a fair question to ponder.

What Next?

Here’s my point: Be aware. CRE portfolio managers who have their head in the game will be less likely to get caught on the beach when the wave hits. The time to start thinking about how you are going to upgrade your facilities to smart technology, connect them to the Internet, capture and analyze the data within, and manage them remotely for reduced energy cost, maintenance expense, total cost of ownership and improved occupant satisfaction is now.

Consider the technologies currently being deployed in smart cities. Consider what you can do next to take the first few steps. It won’t be long before the next wave hits, and when it does, smart CRE portfolio managers will have already seized the high ground in smart building technology.

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Note by Christine Baird, Clarus Real Estate: This article applies to not only CRE portfolio managers but to residential and commercial real estate investors, brokers, and municipalities.  The take away is that Smart Cities will be the wave of the future and the real estate sector needs to be smart and start planning and implementing now.