Observations, Opportunities & Predictions for 2023
ECONOMIC CLIMATE: The R-word and what that means for CRE & PropTech
As interest rates and inflation take hold of their budgets, real estate owners and operators are looking for ways to drive down operational costs. Many are reducing growth opportunities and swapping to OpEx reduction through innovative solutions, such as the switch to green energy and smart management of HVAC systems – as well as data.
So, what’s the role of the TechGC as building owners tighten their purse strings?
Right now, building owners and operators want to see tangible and immediate impact on users rather than think about “big grand ideas.” So smart building consultants need to focus on the quick wins that the end user can experience and embrace now. Therefore, our value as the TechGC is helping you assess the technology and functionality that your building needs now + design the digital infrastructure that will easily support future upgrades. This phased approach is critical to dissolving the fear that many developers have about adopting new technologies.
1. Small building sweet spot
Small and medium commercial buildings account for 94% of the total commercial buildings in the U.S., are equal to 50% of the total floor area, and consume 44% of the total commercial buildings’ energy consumption… but only 13% have a BAS. (Nexus Labs) -- (* to expand on the Nexus categories, we define ‘small’ as < 50,000 sq/ft and 'medium' as <100,000 sq/ft)
This sector is in serious need of a digital facelift but we can’t just take the same solutions that work in large buildings and apply them to smaller buildings. The purpose and goals of a 50,000 sq/ft building are quite different than a 1M sq/ft highrise. So we have to first understand the unique needs of the building owner and the challenges they face in order to curate appropriate solutions.
2. Don’t underestimate a retrofit
Efficiency opportunity: "Small structures can cut energy use from 27 percent to 59 percent, depending upon building type, using “economically viable” and commercially available technologies. Implementation of these technologies would reduce the overall commercial building energy footprint by 17%" (Nexus Labs)
We usually see the greatest cost efficiencies in new construction projects, but down to the stud renovations are also fertile ground for innovation. We see a big opportunity with retrofits, (especially in Manhattan) to help bring existing buildings into compliance with efficiency standards and keep them competitive (from a marketing and tech amenity viewpoint) in a demanding tenant landscape.
JLL has modeled an over 70% reduction in energy use in some office refurbishments, highlighting the major role retrofits must play in decarbonization. Also, the U.S. Department of Energy began accepting state applications for the Energy Efficiency Revolving Loan Fund Capitalization Grant Program, which aims to fund energy efficiency upgrades and retrofits of commercial and residential buildings.
3. Developers who retain their buildings have an advantage
We see two distinct cases of smart buildings. Developers that plan to hold onto their building have a clearer understanding of the functionality their tenants expect (controls, connectivity, security, wellness, risers & pathways) and are more willing to invest in long-term digital infrastructure that will facilitate efficient management and keep their properties on the leading edge. Compared to developers who plan to sell or lease their buildings in the next five years, the long-term building holder will be better positioned in the future to plug and play new technologies faster than their competitors because they already have the necessary infrastructure in place.
This second group is also challenged with figuring out how to transfer the tech infrastructure and data to the new owner/tenant — and how to build the knowledge and opportunity into the price of the property.
“As we go to sell a building, this infrastructure and data should be a part of that purchase and handover. Change management is then the name of the game, how to transfer this knowledge and value in a meaningful way.”
(Smart Building Collective | Certification)
4. More isn’t always better
Rather than installing a bunch of sensors so you can check the “smart” box, the goal is to create a functional building. That’s why we help clients work through use-case scenarios to make sure they have the right equipment (and nothing more) — then we design a sufficient network that will allow the building to add new layers of functionality as needed in the future.
In ten years, we will look back on 2022 as the dawn of the smart building movement.
Proptech is no longer a “trend” or an “opportunity.” It is one part of a larger and far-reaching movement that will transform every sector of real estate. But transformation (specifically, sustainable transformation) is about behavior – and then tech.
In order to be successful, this movement requires an overhaul in the way people think and act. It requires developers to evolve the way they plan, prioritize, and fund technology upgrades that mitigate risks and add value. It requires deep listening and widespread collaboration. There’s no going back to the “old way” of doing things.
We’re building the future. Right. Now.
And we're thrilled to be on this journey with you.
When you're ready, there are 4 ways Techmenity can help:
- Read our blog post, What is a TechGC
- Read 4 Steps to Building a Strong Digital Foundation
- Check out our current project with Galerie Gmurzynska
- Schedule a discovery call with our CEO, Jamie Propp to talk through your specific use case