Smart Buildings and Digital Transformation
Smart Buildings can yield substantial improvements in performance, wellness, and risk mitigation, which can be achieved by a purposeful and methodical approach to technology in design, development, and property management.
Smart Building Macro Drivers
Now more than ever, Smart Buildings are becoming an essential part of every organization’s real estate strategy. We’ve reached a point of convergence of issues, opportunity, and capability never before seen.
The pandemic has accelerated this convergence by thrusting public health and personal well-being onto a list of Smart Building issues, including energy, sustainability, workplace productivity, and personal experience—all of which can be factors in attracting and retaining talent. Post-pandemic, we anticipate that hybrid work and environmental conditions, such as indoor air quality and potable and process water safety, will be emphasized. Hybrid work alone is having a transformative impact on real estate. All use-types are adjusting to the pendulum swing that showed employers work can be done apart from the office and that offices need to be more flexible and technology-enabled. The phrase “hybrid working” has already relegated “coworking” from a category of its own to a subset. However, it’s important to note the pendulum will not remain fully on the side of remote work, as there is a desire to return to the office and a working community environment. This was supported in a recent CBRE report showing that only 28% of employees surveyed desired to continue working on a full-time remote basis (CBRE Real Estate Strategy Reset 2021).
Smart Buildings Definition
So, if you must have it, what is it? We find that the strained definitions of “Smart Buildings” that include “more sustainable, more productive, safer, etc.,” are simply repeating qualities that most any property desires, with or without being a “Smart Building.” Smart Building technology, including various forms of Proptech, are levers and tools to support the organization’s existing goals. In other words, different use-types, ownership profiles, property management approaches, geography, among other factors, affect what you would want from Smart Buildings.
We prefer to drive toward Smart Building attributes, such as scalability, flexibility, risk mitigation, and long-term cost structure reduction. We can attain these attributes through integrating and deploying smart technology and applying requirements for non-proprietary protocols, infrastructure convergence, data ownership clarity, privacy, and cybersecurity. These attributes supported by similar technology requirements are often pro forma neutral and can stop the cynical cycle of “what more will it cost and how long is the payback?” In other words, the macro issues are not always about ROI, which is a subject better suited for a myriad of point solution conversations.
Smart Vs. Digital | The so-called “digital transformation” actually started nearly 40 years ago when building control systems were first made digital. Building monitor and control systems, such as HVAC, lighting, parking, elevators, and access control, were designed to operate on computer servers using software and protocols with distributed digital control devices connected by an internal network and Internet connectivity. It’s hard to believe that much of this technology has been in building systems since the 1980s. We move towards smart when we consider how those digital systems can be more interoperable and what data can be extracted and utilized to create better outcomes. With an organized digital foundation, we can be better prepared for new technologies and the abundant and continuous data streams that will set the stage for analytics and artificial intelligence (AI). |
IoT, AI, and ML
| The fact that we have had digital systems for a long time in no way mitigates the avalanche of digital systems and sensors—the Internet of Things (IoT)—that continue to besiege the built environment. IoT creates significant pressure on Smart Buildings as layers of technology with new systems, sensors, digital signage, workplace technology, smartphones, and even wearables, each looking to interface with buildings for comfort, convenience, productivity, and safety. According to Memoori Smart Building research, “…the number of connected devices in operation in the commercial Smart Building’s vertical is for the installed base of connected devices to grow from 1.7 Billion in 2020 to just under 3 Billion by 2025 representing a CAGR of 10.8%. Sensors and devices to track occupancy movement and analytics look set to experience some the highest rates of growth over the forecast period at 14% per annum.” The increased number of systems and devices creates a critical mass of data that advanced the need for analytics and AI. There are signs of actual AI such as advanced automation and analytics that can find hidden problems and generate work orders while filtering for false alarms, air quality sensors, and people counters that trigger changes in the HVAC parameters or access control data that dynamically determines settings in interior systems. There are grey areas between interoperability, machine learning (ML), and AI, but the labels are unimportant as we focus on Use Cases and outcomes instead of what to call the technology category. |
Where’s Big IT?
With all the talk about servers, software, networks, and Internet connections, many wonder why familiar IT service companies are not more established in the Smart Building solution space (including cybersecurity and vendor risk management). It’s not because they haven’t tried, as many of them have made major pushes into this space, but because nearly all have found it very rough sledding for several reasons.
Fragmentation | Commercial real estate (meant to include most non-single-family buildings) has a staggering amount of fragmentation due to the narrow areas of specialization, such as fire life safety, conveyance, building automation, parking, etc. There can be anywhere from 5-25 systems in a building, all operated and serviced by different contractors. Multiply this by the total number of buildings in a portfolio and you can easily have over 1,000 different systems serviced by hundreds of companies, including several thousand technicians and staff. |
Culture | There is a business book called Culture Eats Strategy for Lunch, and we have observed in real estate that culture eats technology for lunch as well. The best-laid plans for tech solutions are often lost in a culture that is very entrenched and hard to change. This has been the case with many attempted solutions that only considered technology functionality and not workflow, skill sets, contractual limitations, change order impact, and other factors on the ground. |
Technology | While there are many familiar information technologies (IT) in a building, there are even more operational technology (OT) systems. These OT systems cannot be managed or even seen by typical IT methods and tools. Additionally, certain IT tools or methods can add to the risk and have even been known to take a system down. |
Simply put, it takes a broad range of knowledge and domain skills to effectively plan, integrate, operate, and secure a Smart Building, or smart portfolio, along with the patience and commitment to understanding the fragmentation, culture, and technology.
Cybersecurity is Not Enough
Because digital systems are decades old, entrenched, and have a legacy of issues with cybersecurity, systems and vendor risks are pervasive. Cybersecurity alone is not enough, and you need a vendor risk management (VRM) mindset.
Gartner defines VRM as:
“…the process of ensuring that the use of service providers (and IT suppliers) does not create an unacceptable potential for business disruption or a negative impact on business performance. VRM technology supports enterprises that must assess, monitor and manage their risk exposure from third-party suppliers (TPSs) that provide (IT) products and services, or that have access to enterprise information.”
It was noted earlier that this is a nearly 40-year-old issue. To expand on that, despite all the inherent IT in building systems, the entire value chain—from manufacturer to project design, implementation, and property management—is devoid of proper IT skills and best practices. Therefore, you have risks to both cybersecurity and building system set up, such as passwords, software revision, user credentials, and backup status. Finally, you have the individual people policy compliance issue that suffers from fragmentation, turnover, and lack of management in both TSPs and internal staff.
These issues were documented statistically in an analysis of 1,000 buildings assessed by Intelligent Buildings that found 47% of all the building systems were exposed to the open Internet, 49% had valid user credentials from staff or contractors no longer serving the systems, and 81% did not have current backups. Combine all of this with the epic fragmentation and turnover described above and you can see why cybersecurity is only one part of VRM.
Smart Building Outcomes
While technology is interesting to most people, real estate has shown little patience in employing technology for technology’s sake. It has dragged behind other industries in adopting even current-day best practices. We have seen success with owners and managers who could eschew the aforementioned cliched definitions and focus on three key categories:
Continuous Performance Improvement | This can include financial, environmental, productivity, and other metrics. For real estate financial fundamentals, Carnegie Mellon found Smart Building analytics and methods were double-digit more operationally efficient than without—including when used with smart metering. Additionally, Intelligent Buildings has performed pro forma neutral Smart Buildings services on over $25B in new development. |
Enhanced Occupier Well-Being | Enhancing physical, mental, and public health, work flexibility, and convenience can increase attraction and retention of talent. Focus on well-being can also encourage more productive teams and fewer missed workdays, and creates a better occupant or guest experience and improved tenant satisfaction. |
Reduced Risk Profile | Business continuity and disaster recovery capabilities are greatly enhanced with effective cybersecurity, remote access management, vendor and staff risk management, and consolidated system backup. This also addresses areas of insurance gaps and can have a positive impact on premiums. |
PROCESS AND METHODOLOGY
Historically, the approach to Smart Buildings has been chaotic and unorganized. The building owners, managers, and occupier customers are constantly barraged by solution providers with the technology de jour based on systems and features. This could be building automation companies, lighting controls, energy and performance analytics companies, IT services, cloud services, safety and security companies—the list goes on. It’s a never-ending process because there is always “one more.” It’s also a solution searching for a problem. We have arrived at a point in time in Smart Buildings and proptech where the technology is abundant and increasing, so you can put away the systems and features wild goose chase and think about Use Case and outcomes. Use Case selection is a very productive, non-technical exercise spoken in business and real estate language, not technology terms. This directly supports the organization’s highest goals and precedes technical specifications and designs. Use cases are categorical such as health, wellness and safety, operational efficiency, sustainability, occupant experience, and risk. Customers selecting from a library might choose Use Cases such as a touchless experience from parking through entry, elevators, and tenant space. Or they may choose system fault detection in HVAC that automatically converts problems to work orders, or a universal vendor cybersecurity policy with automated compliance reporting, or hundreds of other Use Cases, including custom-developed ones as needed.
This is best done with a specialist service company that can guide the process from the business conversation through technical specifications, compliance oversite, and commissioning of the Use Cases within the bounds of traditional real estate practices. Additionally, cybersecurity and vendor risk management should be a constant thread throughout the process.
After a thoughtful planning, design, and implementation process for new construction or existing portfolio comes the ongoing management. This is about technology and building system solutions as well as facility and property management. A broad real estate knowledge is essential in creating a Smart Building process. It’s imperative for ongoing management to achieve results in performance, well-being, and risk.
You must consider the roles and responsibilities, workflow, contractual language, and insurance and liability during the planning and design phases. Insurance and liability are particularly important. They can shape and refine procurement language and add improvements and efficiency to property management by addressing areas typically omitted in contracts and process language.
CONCLUSION
With all the talk about servers, software, networks, and Internet connections, many wonder why familiar IT service companies are not more established in the Smart Building solution space (including cybersecurity and vendor risk management). It’s not because they haven’t tried, as many of them have made major pushes into this space, but because nearly all have found it very rough sledding for several reasons.
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About Intelligent Buildings, LLC
Intelligent Buildings® is the only company focused on Smart Building advisory, assessment, and managed services at scale for both new projects and existing portfolios. We help our customers manage risk, enhance occupant well-being, and continually improve performance by providing unmatched expertise, practical recommendations, and targeted services. Since 2004, we are the most trusted and experienced name in Smart Building services. Connect with us at www.intelligentbuildings.com.