CHICAGO—Logistics provider DHL and IT leader Cisco recently released a trend report on the Internet of Things that estimates that there will be 50 billion devices connected to the Internet by 2020 as compared to 15 billion today. The report goes on to predict IoT will generate $8 trillion worldwide in increased revenues and lower costs in the next 10 years alone. How will supply-chain or logistics operations, as well as the rest of the commercial real estate industry, be affected by this digital explosion? spoke exclusively with Geoffrey Kasselman, SIOR, executive managing director and national industrial practice leader for Newmark Grubb Knight Frank here in Chicago, about this topic. Kasselman will be presenting the session “Digital Disruption: How the Internet of Things Will Change Your World!” during NAIOP’s commercial real estate conference in Toronto next month. Kasselman is also SIOR’s global VP and will be the organization’s president elect in October. How will the Internet of Things most affect commercial real estate in the next decade?

Kasselman: In real estate, owners typically want long-term leases from credit tenants, which creates value for them, and tenants want five-to-10-year leases because it’s disruptive and expensive to move every year. The world is going to be impacted by IoT in that same time period. What does that mean to the owner/operator and occupant of a building, as well as the service providers making these matches in the marketplace? We’ve got to be anticipating and advising differently. We know these changes are coming, we can’t stop them, but rather than signing the same leases or building the same buildings we used to, we have to stop and think what the IofT does if we have all of these devices in our buildings we didn’t used to have.

Things like infrastructure and power in the building have to be thought about—how many battery-charging stations do we need, where should they go and whose responsibility are they? Also, air conditioning has to be considered—not all devices are small; some are automated robotic devices that will produce products that humans used to product and that will generate heat as a by-product. Do we need more air changes? How will connectivity to the Internet work—via wire or fiber or is wireless enough? If the power goes out, am I out of business until it comes back up or do I have a back-up system? Redundancy increases building costs and, in turn, lease costs.

There is also insurance—are the buildings properly insured for these devices? Business continuity is also a concern—what happens if I become so reliant on my devices to run my buildings and something catastrophic happens? Do I have enough coverage? What does all of this mean for my lease today? Things like manned or preventative security and cybersecurity are also in question—what if I have trade secrets or confidential data? Who am I protecting this from: an employee, a contractor, a passerby? Is an ADT door alarm enough anymore? CRE has to start thinking about lease clauses, which will be written differently. Tenants will also want different types of protections, but for different reasons. It really does very quickly impact fairly mundane or routine building issues as we’ve come to know them for quite some time.

From there, it will unleash an even greater focus on energy-efficiency efforts. In each device, there is an energy-efficiency component. It comes down to electrical power and how efficient you are in your building consuming much more energy than you used to. Demand-reduction measures and procurement strategies will come into play as people attempt to pay less for energy. Big data also generates a lot of information, so where are companies going to store all this data that these billions of devices are generating? It’s the big-data conundrum.

WHO WILL BE EFFECTED MOST? Which sectors of CRE will be most affected by the IofT?

Kasselman: Office and industrial will be affected, of course, and in a different sort of way, mission-critical real estate or data centers stand to gain from all this data generation. People aren’t going to store massive hordes of data on hard drives, transport it with them and possibly put it in harm’s way. They will store it in the cloud, and that only exists because data centers with racks of servers exist. This sector stands to gain considerably from IofT. It will have all the same concerns I listed above, but it will help that asset class proliferate. Every building everywhere will be impacted—maybe manufacturing and distribution, and more space will potentially be allocated to more devices. Office and retail space will be impacted because there are physical constraints on what you can put into those spaces. What should the industry do to prepare for these changes?

Kasselman: There needs to be a greater degree of education, whether it’s self-education or education generated by industry groups. There need to be demo centers where people can come together and learn and take this knowledge back to their respective markets. There needs to be a greater degree of collaboration with the legal and insurance communities to make sure that liability, especially in the area of cybersecurity, is addressed. It’s the great virtual Wild West, and there are still so many unknowns. Until we have some precedents and case studies to rely on, we’re all mostly guessing or speculating based on the limited amount of information we have. Partnering with these communities for awareness and best practices for the betterment of the industry is probably the right place to start. Sooner or later, a for-profit entity is going to pioneer this space and move away from the pack of folks that are late adopters. Is your building going to be IoT ready or is it going to be the same building it was the year before and the year before that? What else should our readers know about the IofT?

Kasselman: There are two groups: those who have begun to understand this subject matter and those who will have to. There’s no escaping it; there’s only awareness of it and adaptability to it. That’s why we decided to make it a session at NAIOP, and we probably will also do so at SIOR. There’s a large mixed audience made up of many areas of the industry at these events. A little education and awareness can have a tremendous ripple effect if people learn it take it back to their respective firms and begin to take action on it.