This is my building’s final offer

By | 8 minute read | November 1, 2017

leadspace image for wired article on the future of connected real estate

One day in the not-too-distant future, when a building manager and tenant sit down to haggle over the terms of a new lease, the building itself—not the manager—will hold most of the cards in the negotiation. The manager may have an idea about how much a tenant uses a building’s facilities. The tenant will have another. But the building—and more specifically, the constellation of data that surrounds every aspect of its operation—will know the real truth and set the terms.

New markets and new savings are emerging from buildings that think

As machine learning moves from the lab into myriad industrial applications, massive “things” in the Internet of Things—commercial structures, office buildings, manufacturing plants and the like—are taking on powerful new cognitive abilities that could alter the economics of commercial real estate. Managers and builders are tapping into next-generation sensors and smart systems such as Watson to analyze everything from an office tower’s HVAC system to its mouse infestation, enabling humans to manage and optimize physical assets in a digital environment. In short, IoT is morphing into an emerging Economy of Things, in which a building’s digital twin—its collective statistical rendering—can make for a shrewd CFO.

In most organizations, the real estate portfolio ranks as the third most valuable or expensive single asset, with operational costs accounting for 71 percent of the total cost of a building’s ownership, according to a report from the Builders’ Association. But with recent advances in cognitive computing, those capital investments will soon take on new capabilities that can offset costs and support the bottom line.

Rather than a building always landing on the cost side of the ledger, we’ll increasingly view buildings as a collection of assets—the space available, the equipment inside, the energy they consume, the security they provide—to be leveraged. There are markets for excess space and surplus energy that buildings will be able to participate in on a dynamic basis. There is a price that can be put on real estate that meets and exceeds corporate sustainability goals, thanks to using the right data over the lifetime of the building. There is a concrete value in buildings with pristine security records because of the smart systems deployed.

Building management learns from fund management

If owners extend that asset view of real estate across their entire portfolio of properties, they will begin to understand how each relates to one another in terms of value and needed improvements—the way fund managers constantly run detailed analytics on a stock portfolio. With that transparent view into their assets, and on an immediate basis, they can know which dials to turn at which moments to get the absolute most financial return on their properties. And soon, the buildings themselves will tweak those dials.

“Looking at the building as multiple assets within the building is where we are headed,” says Peter Halliday, Siemens Global Head of Buildings Performance and Sustainability. “The more data we can get, the better we can have those assets perform both individually and collectively.”

Siemens already has 60,000 buildings connected to its web-based building management system. Because of that scale, Siemens is able to help its customers benchmark their properties against the best output in their in particular categories. “With the data we have, and utilizing external data too, we can help our customers learn more about their buildings and their building portfolios relative to similar buildings and similar building portfolios,” Halilday says. “At the end of the day, the data and the reports that can be generated from it help people make more intelligent decisions. And in some sense, it’s the buildings helping to make those decisions.”

From that macro view of buildings as a collection of smart assets, we can zoom into how more data thrown off from a cognitive structure has the potential to increase value across every facet of a business. And that also means cranking the dial on the “human touch” aspect of services, says Andrew Price, ISS Group Chief Commercial Officer.

Copenhagen-based ISS is in the business of offering very human-centric services, employing more than 500,000 people around the globe to address the needs of clients like Rolls Royce and Novartis with everything from catering to technical maintenance.

ISS just announced a partnership with IBM’s Watson group to ultimately deploy millions of devices and sensors—in doors, kitchen plate dispensers, chairs, and tables, you name it—in some 25,000 buildings worldwide. ISS has already rigged up its Copenhagen headquarters with hundreds of sensors connected to IBM’s Watson IoT platform to help improve room bookings and catering services for the building’s 250 employees. The next phase will be rolling out cognitive IoT technology to select customers.

A better work environment

As the buildings come online ISS hopes to not just run more efficiently, but to offer a better work environment for ISS employees and superior, differentiated service for its customers.

“Buildings should work for people, Price says. “Using these cognitive capabilities we will be able to provide places which are more efficient from an asset perspective, but more importantly more capable of supporting great service as we go forward. They’ll be places where people will want to be rather than places they have to go to work. They’ll be places where the human being part of us is retained.”

“So these places in the future will be much more interactive. And to attract people to that interaction, we’ll need buildings which are exciting, which create creativity, and really allow a business to come alive.”

For ISS, the value that all those millions of sensors will provide flows from an increased ability to offer a standard of service in its buildings—that human touch—that is unique from the competition. “The real value isn’t the data,” Price says. “It’s turning the data into knowledge which drives continuous improvement for our business.”

ISS is focused on technology amplifying its people-centric services business, but depending on what business you are in, buildings bristling with sensors offer different options for economic returns. We’ve already seen assets become more liquid within the consumer world. Airbnb and Uber now allow people to unlock additional—and often quite lucrative—economic value in their homes and cars. By listening to the data streams, that same unlocking is starting to happen in the commercial world, right down to the square foot. There are small savings, like repurposing unused conference rooms as rented classrooms. But for a bigger impact, businesses can now re-negotiate building contracts after analyzing how much of their offices and facilities they’re truly using. They can quickly deduce whether to re-rent the remaining space or negotiate lower rates with their landlords. Pull in data across a portfolio of real estate, or a region, and thinking systems will be key in understanding and predicting lease terms, even negotiating on a party’s behalf.

No crying over spoiled milk

Then come operations. Let’s examine the food business. Fridge units need to keep running. The food service industry loses billions of dollars each year to spoilage. When freezers conk out in a heat wave, entire shipments of milk and dairy can be lost. Eventually, the most useful sensors not only alert managers the moment something breaks, they alert managers before something breaks, which allows for preventive repairs before a catastrophe. Additionally, with IoT sensors logging the hours the technician was actually on location, there are far fewer discrepancies when the bill arrives.

Drive-in restaurant chain Sonic is mapping out both its real estate and equipment digitally, giving it something it never has had, a single truth, according to Barry Smith, Sonic’s director of fixed assets.

“We have a lot of equipment, well over $200,000 in heating, refrigeration, cooking, shake machines—you name it,” Smith says. “The first thing this software overlay will help us with is our maintenance. Right now there are no reminders, whether it’s for the equipment or the systems in the building, so it’s often forgotten. It sounds simple, but now everyone will be getting reminders for maintenance, which will help with energy use and the equipment lasting longer.”

As the equipment and the buildings themselves get additional sensors and intelligence, Smith anticipates his department will be able to shift from a reactive to a proactive posture. “If we see productivity going down on a piece of equipment, I would much rather send someone out for $200 or $300 to take a look and fix a problem than replace a $15,000 piece of machinery because we didn’t notice the problem. Multiply that across our 400 corporate stores and the 3,100-plus franchises, and you are talking a huge savings for our system as a whole.”

Smith imagines a point in the not too distant future when he’ll be able to add overlapping data sets to the mix for an even deeper view of individual restaurants and the overall system. Factor in traffic flow data in front of a current or prospective Sonic site, demographic information, weather, even building codes and permitting fees, and Smith will be able to get a view of the cost and time it should take to build a new location, as well as what kind of revenue it should deliver. It’s that single truth he is after, and one that current and potential franchisees will benefit from too. Better, more predictive data from the stores themselves can only help Sonic’s current and future business, Smith says.

“My hope is not only will the construction process go faster, it should get rid of a lot of errors along the way, and offer us a more standardized approach,” Smith says. “And once a location is up and running, we should also have a lot more data to go off as to why a store is performing well or underperforming. We can learn from those that are doing well and apply it to those that can use some help.”

Everyone could feel good about the lease deal

Managers up and down the supply chain of commercial real estate will soon have real data surrounding the value and mechanics of their buildings. With buildings eventually participating in new markets, new contracts and operations—and providing transparency to all parties involved—everyone might soon walk away from the negotiation table feeling good about the deal.

Learn more about what the IoT can do for your buildings.