The buzzword “Disruptive Technologies” was coined by Clayton M. Christensen in 1995 (although he later he changed it to “Disruptive Innovation” because he argued that few technologies are disruptive, rather it’s the business model that the technology enables that creates the disruptive impact.) In our world of commercial real estate, technology is having a profound impact.  Market forces are increasingly forcing investments in technology:  tenants and investors are demanding upgrades in IT, MEP and energy efficiency and as a result, greener and smarter buildings yield better tenant attraction/retention, lower operating costs and higher rental rates. 

Smarter Buildings

Technology is making our buildings smarter. The Internet of Things (IoT) makes it possible to collect huge amounts of data, which can be used to expedite or even automate management decisions; resulting in improved efficiencies and reduced down time. Heating and ventilation systems, lighting, distributed power, security, elevators systems, CCTV, communications, parking, utility grid meters, vending machines, water management, landscaping/irrigation, digital signage and voice communications can all be operated and optimized through centralized management systems.  This interoperability of building systems leads to better managed, more efficient assets. Tenants expect smarter buildings – particularly in the space of energy optimization and data/wifi connectivity- and investing in such technologies presents a great opportunity to optimize ROI by lowering operating costs, improving marketability and value.

Smart Cities

On a city-wide scale too, networked physical systems will play an important role by enabling the real-time collection of data related to health, pollution, energy usage, traffic, water usage, and waste disposal. The city of Amsterdam in the Netherlands is widely considered to be a smart city, with a wide array of interconnected systems, products and initiatives, many of which are government-sponsored.  Among these is Mobypark, an app which allows owners of parking spaces to rent them out to people for a fee (kind of like AirBnB for parking). The city then uses the data generated from this app to determine parking demand and traffic flows.  Other city-run initiatives include flexible street lighting which allows municipalities to control the brightness of street lights and pedestrian traffic, and smart traffic management systems, which monitor and broadcast traffic in real time to advise motorists on the fastest routes to take.

Recently the City of Los Angeles announced that it is installing the first city-wide cloud and mobile based lighting control system. Using mobile chip technology embedded into each fixture, the LA Bureau of Street Lighting is able to remotely control lighting fixtures, and monitor the energy use and status of each light. According to LA representatives, “This smart plug and play approach not only reduces the cost of programming each fixture, it also reduces the time of commissioning from days to minutes and eliminates on-site commissioning completely. Furthermore, the entire system can be securely controlled and managed remotely through any web browser.”

Of course, these kinds of developments place enormous pressure on wireless networks, which must also continue to evolve to keep up with ever-growing mobile data performance demands. For example, 5G is the ultra high-speed and high-capacity successor to 4G networks that are currently widely used, and will be a critical component to enable ongoing innovations and developments in the networked society of the near future.   

A New Investment Risk: Cyber Security

Critically, these intricate connections can create security vulnerabilities. The growth of wireless equipment monitors and cloud-based data storage inevitably increases the risk of unauthorized access.  As properties utilize interconnected networks to gather massive amounts of incredibly valuable data, they will increasingly become inviting targets of cyberattacks. For lenders and investors, “cyber security” should perhaps become a due diligence consideration to protect their interests.

To address security concerns, the National Institute for Standards and Technology (NIST) has pushed for the development of a more secure, interconnected environment for cities.  Their research and analysis have focused on ensuring that an attack on one system (such as street lighting) cannot spread to others (like traffic lights or a city-wide CCTV system), preventing a security flaw in one device from compromising other parts of the system, and optimizing security settings to secure the means of transmission and storage of data collected.

Smarter, Safer Real Estate

The transition to smart cities and buildings could have a huge impact on our built environments.  Efficiencies in municipal energy and water management may reduce city costs, which could facilitate reinvestment in the infrastructure. Networked parking meters could be used to optimize urban parking, thereby minimizing the parking requirement for urban real estate, to allow increased building densities.  Some cities have even applied IoT principles to waste hauling with “smart” municipal trash cans that signal when they’re full, saving a trip to a half empty container.

Smarter, better operated buildings will yield higher returns.  Investing in technologies to improve energy efficiency, IT and connected building systems has potential to significantly increase the marketability and value of your assets.  As smart-building technology continues to evolve, it is critical that lenders and investors stay ahead of market demands, applications and security risks relating to new technologies to ensure their investments deliverrather than disrupt returns.