Last year a researcher from the MIT Center for Real Estate and Real Estate Investment Lab published a journal article which presented data on the marketplace value of smart buildings. Obviously the term smart buildings has been used extensively for some time; publications abound with references to smart, connected and IoT buildings. Many of the ostensible benefits of such buildings are clear, focused on operational savings through energy reductions, predictive maintenance and an array of occupant benefits. This publication tries to put the benefits of such buildings into terms that resonate with the real estate industry: rental and transaction price premiums.
The report found that smart buildings commanded a 37% premium in rent and a 44% premium in transaction prices. The results are eye-popping, and on the surface pretty positive. Complex research of this type has lots of qualifiers (which the author rightly notes), but among the notable ones are:
- New York City was the only location analyzed
- The definition of “smart buildings” actually consider a combination of smart, connected and green properties
- Vintage of the properties was not controlled for. Presumably those with smart, green and connected features might skew to more recent years of construction/major renovation than control group buildings.
- Perhaps the biggest qualifier is also the big unknown: cost premium. The available data did not have cost for the buildings, thus an actual ROI calculation is not possible.
All this aside, the significant rent premium suggests that smart building features translate into occupant value and willingness to pay. Since many measures can be incorporated into a smart building it’s hard, and today perhaps impossible, to disaggregate specific smart building measures from the whole to determine which are most significant to occupants/tenants. However, if we think about the fundamental purpose of a smart building, from an occupant’s perspective, it can shed some light on this.
What occupants value
While operational savings and the potential for new value-added services are the focus of the facility management and even investment set, occupants might feel differently. If we think about residential smart home features as the personal analog to commercial smart buildings we can make some reasonable inferences about what people, i.e. occupants/tenants, value. Smart home features focus on the interconnection of many traditionally disconnected elements, much as smart buildings do. However, is it really connectivity that people value? Really, connectivity is the necessary enabler, the actual customer value is control. A fundamental and truly universal element of human nature is our shared desire for control. Not necessarily over one another (thought that too) but over our environments, our lives. In the end, this is what the smart home is really about, providing new levels of control over our environment.
Desire for control and occupant value
If we accept that desire for personal control is really the driver, we see that not all smart building features, arguably most, don’t really deliver this. That is OK, as value for other parties, like developers and facility managers, is still great. However, these features are less likely to translate into occupant/tenant value than those providing them with personal control. This leads to one conclusion: if rental premiums are a desired goal for smart buildings, those buildings need to recognize which features are most likely to be valued by tenants and prioritize those. Examples include opportunities to change work location, to interact more directly with building management or just directly control personal comfort (e.g. lighting, heating, cooling, ventilation etc.). As smart buildings grow we will continue to learn how they translate into value and, just as critically, what form that value takes and for whom.
Jordan Doria is the Senior Channel Marketing Manager for SageGlass. Jordan has a decade of experience in the building industry, working to promote buildings that are better for people and the environment. He holds a Bachelor’s and Master’s Degree in Political Science from Villanova University (USA).