In the end, it all comes down to return on investment (ROI), for smart buildings and most everything else. The promise of energy efficiency, better access control, greater comfort and environmental responsibility are all well and good, but to convince the majority of customers, the smart building sector needs to get specific on the returns building owners can expect from their smart investments.
The EPA estimates that the typical commercial facility wastes 30% of its energy. Then consider that commercial and industrial buildings in the U.S. alone are responsible for $200 billion in annual energy costs, this means as much as $60 billion being wasted each year. There is clearly potential for significant ROI from energy efficiency technology.
However, “the notion that there is “an ROI,” like there’s one number out there lurking in the forest ready to be slain by the arrow of technology, is too simplistic. The answer is much more nuanced and complex than a number or range of saving,” explains Aaron Lapsley of Switch Automation.
The problem is that smart technology and the Internet of Things only generate information, and information is simply the grease in the spokes of real economic value. For a product to have ROI it must generate real value for a business, meaning a benefit that exceeds its cost in a reasonable timeframe, and ideally adjusted for risk.
Thankfully, recent years have seen an increasing appreciation and understanding of the value of information. In a number of industries, not especially real estate, the quality and punctuality of information can be the difference between success and failure for competing companies.
Consider a smart building example; by increasing occupant satisfaction and decreasing total cost of ownership (TCO) a building can significantly improve their portfolio’s net operating income (NOI). So, by using information from smart technology, companies can command a competitive advantage and gain leverage over their suppliers and vendors.
A study by The World Green Building Council found 81% of workers have a difficult time concentrating if the temperature is higher than they’d like, while 62% say it takes up to 25% longer to complete a task when they are too hot. Only with smart technology enabled heating, ventilation and air conditioning (HVAC) control can a building hope to provide tailored climate control to building occupants while also reducing overall energy consumption.
The greater the lack of information held by a building, or real estate business, the greater the potential ROI that entity could achieve. Equally, the increase of information in competing companies will also increase the need, and therefore ROI, for a building owner. The rise in the value of information in recent years has made data a strategic asset.
It its simplest terms: smart technology unlocks data; data unlocks information; information unlocks actionable intelligence; and actionable intelligence unlocks growth and ROI.
“Data and control capability lets them [buildings] fine-tune processes at a greater number of building systems to lower energy and maintenance costs. It also lets them invoice tenants accurately for their utility use, and can increase tenant appeal with improved comfort and sustainability. The resulting savings from IoT-based energy management alone can provide compelling ROI, even for buildings under 100,000 square feet,” explains Steve Raschke, chief executive officer of CANDI.
For the busiest parts of the biggest buildings, smart technology is a no brainer. For 90% of buildings, those fewer than 100,000 square feet, perceived low ROI limits the willingness of owners to invest in smart technology. Without clear, calculable ROI it is difficult for these medium and small buildings to take the plunge. The wise decision is to stay with their current system until they can calculate a safe transition.
The emergence of cloud based analytics as well as the continuing drop in the cost of sensors and other technology has brought about attractive ROI levels for the majority of building stock. However, as long as confusion remains over the potential returns of smart technology for building owners, mass-market penetration will not take hold.
It is up to the smart building sector to calculate and clarify the ROI of making any building smarter.