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As IoT technology and philosophy continue to advance, smart buildings are becoming an increasingly attractive option for property investors. Whereas just a few, short years ago, retrofitting an existing building with smart building technology would have been considered prohibitively expensive, that is no longer the case.
A Value Added Proposition
Increasing evidence indicates that transforming older buildings into smart buildings is not just an environmentally conscious decision, it is also good business. Research indicates that smart building technology increases building value substantially.
A 2012 survey from the Global Real Estate Sustainability Benchmark reveals that energy-efficient commercial buildings and commercial buildings with green attributes demonstrate:
- a 2 to 17 percent increase in resale value
- 8 to 35 percent increased rental rates
- 9 to 18 percent higher occupancy rates
- 30 percent lower operating expenses
- 9 percent higher net operating income
Since the time of that survey, smart building technologies have advanced, which may be a predictor of even better outcomes in the near future. It is likely that, as more and more property owners begin to notice significantly higher than average market prices for their retrofitted properties, energy performance may begin to play a larger role in the appraisal of commercial properties.
Financing Availability a Significant Factor
Many commercial property owners are somewhat hesitant to invest in energy efficiency and renewable energy projects because of a seeming lack of interest in financing such projects by banking institutions.
However, there are signs that this apparent lack of interest likely will not continue, as financial institutions begin to appreciate the considerable value of investing in smart technology. At the 2015 ULI Fall Meeting in San Francisco, Richard Chien, senior program coordinator in the city of San Francisco's Department of the Environment, observed that U.S. real estate companies must be convinced that building retrofits increase the intrinsic value of a property and enable tenants and owners to pay less for energy.
At that same meeting, Shannon G. Smith, founder, CEO, and managing partner of Abundant Power Group, observed:
"Banks are getting a little bit more excited about financing energy efficiency improvements. More and more financial institutions understand that the money used to fund efficiency improvements will flow back in the future."
This is good news for commercial property owners who wish to improve the value of their investment properties. Access to funding to retrofit existing properties will make the entire process more palatable to conservative property owners.
Additionally, there are several certification and disclosure policies in place in certain large U.S. cities that can help cement energy performance as an asset valuation tool for appraisers, as more and more smart buildings enter the resale market. Voluntary programs such as Energy Star and LEED also play a role by standardizing energy performance requirements.
Europe's Energy Example
Historically, the U.S. lags behind Europe in sustainability programs, largely because the cost of energy in Europe is more expensive. This higher cost has led Europe to adopt energy efficiency as a primary goal. A European Union directive mandates that each building gets an energy performance certificate (EPC) score, which is displayed prominently on a plaque on the building. This program is an excellent example of Europe's commitment to energy efficiency.
As European real estate owners have incorporated energy-efficient technologies into their properties, they have reaped significant rewards in the way of increased efficiencies, as well as increased market value, for their properties.
It is only reasonable to assume that U.S. commercial property owners will see a corresponding bump in their property values when smart technologies are adopted.
Jack Rizzo, head of global construction and development services for Prologis, predicts:
"There's a value around energy efficiency. There is more awareness about energy consumption costs now than there was before. It's going to be a powerful force over the next five years."
Now Is the Time
As evidence continues to emerge that smart buildings make sense for property owners and tenants alike, it is wise to consider how to take advantage of the significant monetary gains that can be realized from adopting smart technologies.
If you would like more information about our smart technology platform, please contact us. As leaders in the field of smart building management solutions, we would be glad to demonstrate what our platform can do for your buildings.
