The world of property seems to have got its head around smart buildings. Increased energy efficiency and the improved performance of a facility brings new value for owners who can attract more tenants at better prices. Predictive maintenance for example, reduces cost and potential unexpected downtime, thereby attracting and retaining clients. Smart cities however have a much more complex relationship with property value, one that is still a mystery to many in real estate.
IBM defines a smart city as “one that makes optimal use of all the interconnected information available today to better understand and control its operations and optimize the use of limited resources”. While the British Standards Institute (BSI) suggests it is the “the effective integration of physical, digital and human systems in the built environment to deliver sustainable, prosperous and inclusive future for its citizens”.
At first glance, these definitions do not appear to be describing things that would immediately and directly impact real estate. However, with a smart makeover come a variety of improvements that are likely to make a city, or neighborhood more attractive, especially for younger generations, such as the tech savvy millennials and generation Z. By increasing attractiveness to these increasingly important elements of the workforce you also attract the companies trying to hire the best of them.
“Millennials (those born between the early 1980s and early 2000s) will make up 75% of the workforce by 2025, whilst Generation Z (those born after the year 2000) will begin to enter the workforce from 2018. These are generations that have grown up with digital and connected technology, and they will prioritize smartly designed and technology rich workplaces when choosing between employment options,” explains the latest report from Memoori.
The report, The Future Workplace: Smart Office Design in the Internet of Things Era, highlights in its recruitment section that not only are a high percentage of younger workers looking for technologically advanced places to work but also respond well to environmentally and socially responsible developments. “Technologically progressive and ethical strategies can be viewed not only as socially responsible, but also as powerful tool for recruitment and retention of talent in the current and future workforce,” the comprehensive study suggests.
Consider the recent news that Google’s smart city sister company Sidewalk Labs has chosen Toronto’s city’s waterfront district as the location for its first major development. According to its parent company, Alphabet, Sidewalk Labs is working quietly but productively on “the city of the future.” There should be little doubt that a city ‘made by google’ is a city that a large section of the population will want to live and work within.
Looking deeper, buildings themselves can and should be considered part of the smart city movement and a smart city without smart buildings is essentially a bunch of high-tech streets and public areas.
“Buildings make a City, and grid connected Smart Buildings make a Smart City. If we are to see our transition into a smart urban world we must develop Smart Buildings alongside the grid in Smart Cities, and crucially focus on the interconnection between the two,” concludes our 2016 article What’s a Smart City Without Connected Smart Buildings?
Then consider all the other elements promised by the smart city; Driverless cars will reduced congestion and improve transportation, their introduction will remove the need for car parks freeing up new space and making cities more aesthetically pleasing. Digital democracy is another factor serving the demands of a generation who knows that technology can improve our outdated systems. Wherever you look smart city developments are making urban areas more attractive for progressive people, young and old, to live and work – and on that basis will greatly improve property values.
The impact of the Smart City phenomenon is far reaching. A number of sectors within the real estate market are going to be affected, not least those in the retail and corporate sectors. While it is difficult to narrow down the most important implication of such change, one of the key points across sectors will be that landlords and tenants will have a whole host of additional points to consider when choosing suitable premises, including the impact of these advances on service charges and repairs.
Many challenging issues will also arise from smart city development, but most experts agree that the smart money is on big value in the smart city property market.