Data on the Market Value of Smart Buildings
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.
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. 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 Results
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 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 investors, occupants might feel differently. If we think about residential smart home features as the personal analogy to commercial smart buildings, we can make some reasonable inferences about what occupants/tenants, value. Smart home features focus on the interconnection of many traditionally disconnected elements. While connectivity is the enabler, what customers value is personal control over their environments.
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 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.
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.