Navigant Research Blog

Rethinking Intelligent Building ROI: Follow the Money to Transactions

— November 14, 2017

The intelligent buildings market has undergone a makeover in recent years that has yet to move the needle on widespread investment. The narrative has shifted in the last 2-3 years from a focus on energy efficiency to business insight. The logic behind the push makes sense when you consider the financial impacts of energy costs relative to employee costs in terms of building ownership (remember the omnipresent JLL 3:30:300 calculator). The problem is, metrics that impact payroll or employee costs are complex and interactive. There is no mutually exclusive measure of productivity—if a workspace has the perfect temperature and lighting, an employee may still fail to meet a deadline because of so many hard-to-measure issues: personal life, management, workplace culture. The healthy building approach has been a pathway many stakeholders are taking to frame workplace conditions and worker productivity, but the reality is the numbers are still soft.

Energy efficiency remains a straightforward way to measure the impact of technology deployment. You invest in controls and automation in your office building, you see a reduction in your energy bill by 10%—that is a defensible measure of ROI. However, energy remains a small overall share of operating costs for many building owners, particularly relative to other business costs, so what can make building energy performance bare real weight in business? It seems a one-two punch of public disclosure and financial due diligence may be the answer.

Public Disclosure and Real Estate Valuation

Many US cities have aimed at building energy use as a lever to tackle greenhouse gas emissions. Public disclosure programs range from voluntary to mandatory but are generally limited to reporting, without mandates for efficiency improvements because of the politicization of climate change in the US. It seems there must be a bottom-line pressure that aligns with the energy performance rating to drive investment in energy efficiency. And now it seems there is.

A recent article in Urban Land explains, “If energy efficiency can be correlated to mortgage default rates, it could have a significant impact on energy disclosure and possibly even mortgage interest rates. Underwriters on new projects may consider requiring energy disclosure before issuing a new loan, or charging a higher interest rate (all else being equal) for energy-intensive properties. Mortgage companies looking to reduce their default risk may also look to engage their current portfolio in strategies to improve their energy efficiency.” This article was based on findings from a 2017 Lawrence Berkeley National Lab study, which aimed to correlate commercial mortgage default rates and energy efficiency. The study concludes that “building-level source energy use intensity (EUI) and the electricity price gap are statistically and economically associated with commercial mortgage defaults. Using building energy simulations, we find that building asset characteristics and operational practices that affect source EUI have very important effects on the likelihood of default.”

So, there it is, a roadmap for quantifying the relationship between building energy performance and real estate asset value. The argument could even go a step further and assert that intelligent building solutions are worthwhile investments to provide a foundation for minimizing EUI and ensuring ongoing energy efficiency gains. The analytics at the center of leading intelligent building solutions will monitor, report, and even predict changes in energy consumption based on space use. This insight can become strategic guideposts for business decisions around real estate. As more data is collected, there will be greater opportunity to tackle the challenge of quantifying those softer, yet significant, employee costs over time. Today, energy efficiency remains paramount in showcasing ROI.

 

STEM Matters – Let’s Get Data Smart for Facilities Management

— November 9, 2017

November 8 was national STEM Day, and it was a great excuse to talk about career opportunities for the next generations of business leaders. The aging workforce is a strange phrase to hear in an era when there is a steady stream of conversation and study on the disruptive power of the millennial workforce. However, some important economic sectors face the real issue of diminishing employee pools. Let’s look at facilities management (FM) as an example: it faces the threat of an aging workforce, but also provides an opportunity for the focus on science, technology, engineering, and math (STEM) to change the course.

According to IFMA, less than 10% of its members are under 35 years old, and according to JLL, only 45% of millennials have heard of FM and less than 1% plan on a career in the industry. And just wait: next up is Generation Z—the students entering high school today who represent the real opportunity for shaping the future workforce through STEM. While only a hum of study on this group has occurred so far, a few signs suggest STEM can be a great avenue for channeling this generation’s profile, characterized in a recent Inc. article as realistic, independent, “digital natives.”

It is time to flip the switch. We need a new face for FM, and there are two side-by-side pathways the industry should explore to overcome the challenges of the aging workforce.

#1 – Excite the Digital Natives

The legacy caricature of a facilities manager is a middle-aged male with a clipboard and socket wrench. Today, the Internet of Things, analytics, and the digital transformation of building systems open the door to a new ideal for FM. An opportunity exists for the industry to redefine roles, titles, and influence in business to elevate the career path with a technology spotlight that can attract the next generation of employees. FM firms and corporate FM leadership can showcase how they are incorporating analytics into their operations strategy and how the data and insights illustrate the business value of best-in-class FM practices. There is a new frontier for FM as more intelligent systems become embedded and owners explore how smart facilities can become platforms for new business opportunities. The career path becomes exciting when a facilities manager becomes the data scientist for the digital building and has influence on projects like orchestrating energy consumption across a campus or portfolio to ensure power reliability or reach climate change mitigation goals.

#2 – Explore Business Models with Flexibility

The US Bureau of Labor Statistics estimates that today’s students will have 8-10 jobs by the time they are 38 years old. The question then emerges, What can companies, including FM services and corporate real estate firms, do to keep new talent focused on improving building operations and moving toward that vision of the digital building kind of business asset? The answer may be a partnership framework, with FM as a service capturing the attention and commitment of new talent demanding flexibility and work diversity. The nimble approach of the as a service model companies emerging in the intelligent buildings space aligns with the data-centric mindset of the digital native generation. These companies build a set of services off a software backbone offering. The opportunity is to infuse data science alongside domain expertise for FM. STEM can play a big role in helping to groom new employees for opportunities in this sector through its educational focus.

 

What It Will Take to Make Healthy Buildings a Business Priority

— October 19, 2017

Healthy buildings are an emerging hot topic at industry events and in facility trade publications. In September 2017, I participated in the half-day Healthy, Adaptive Buildings Summit at this year’s GreenBiz Verge Conference. The conversations were invigorating, shifting from environmental justice to workplace transformation and back again. I was left with a lingering question: Are healthy buildings the next overhyped trend? Does the movement aim to encompass technology and business but will fail because of a misguided, yet well-intended focus? Not if industry leaders refine their message.

The panelist noted the similar lack of a common lexicon, or a range of definitions that reflect the wide stakeholder groups showing interest in the idea of healthy buildings. The opening panel discussion during the summit reminded me of ongoing conversations I have in the broader building technologies arena on terminology: Is the building smart, intelligent, a structure of connected technologies made up of systems? What threshold defines that next generation space? Panelists shared their differing, yet parallel points of view and these definitions resonate with me:

  • Health is basic, the absence of things wrong.
  • Well-being is how you feel about your health, and how you respond emotionally.
  • Wellness describes the proactive steps you can take to maximize both.

These descriptions clarify health at a personal level, but how can these ideas be extended to buildings? Healthy buildings can describe the effects from equipment operations on energy consumption, sustainability, environmental justice, and even employee productivity. If stakeholders can align their messaging, there is a great opportunity in the movement to make healthy buildings the next umbrella concept for the facilities industry. The answer is adaptability—flexibility in how to deploy and use technology in addressing multidimensional business objectives. The second theme of the summit, which is a valuable dimension that can showcase technology as a means to the wide-reaching goals of the healthy building movement.

3-30-300

JLL’s 3-30-300 Calculator has become the go-to metric for explaining why the intelligent buildings market has pivoted and the focus has moved from energy up the chain to that big 300 number—the cost of people and the aim to improve productivity. This metric is powerful because it speaks to the heart of the business perspective. While sustainability, social responsibility, and other potentially amorphous corporate goals are important from a branding and positioning standpoint, the bottom line still drives investment. If the healthy buildings movement can use technology and the data and analytics from the intelligent buildings market to quantify productivity, the investment is worthwhile. This is no simple task; data is key. There are so many variables that affect the measure of productivity and the industry has failed to create a single equation to measure the 300 just yet.

New Calculation of Adaptability

Thinking of adaptability as a lens on how to select and deploy technology for use in multiple ways may just be the framework the industry needs to make healthy buildings a substantial initiative, meet multiple stakeholder needs, and move away from surface-level buzz. Real-time data on occupancy and movement, indoor air quality, feedback on comfort, and data on business output could be valuable measures for a new calculation of adaptability. The measure of adaptability is also attractive as a way of reframing the conversation in line with the focus on the occupant we hear in the market more and more. Can adaptability describe the healthy building movement and provide the data that key decision makers need to characterize how their facilities are best in class? I would argue this approach can create a common conversation around dynamic systems with automated, ongoing performance improvement and a way to root the soft concept of health in the stiff framework of technology enablement.

 

Data – The Foundation of Value in the Energy Market Transformation

— October 17, 2017

I attended GreenBiz’s annual Verge Conference in mid-September and found a unifying theme throughout the diverse discussions on the intersection of technology and sustainability: data is the key to market transformation. The topics of the conference’s sessions spanned from environmental justice to grid modernization, but in every conversation and demonstration, it was clear that access to, and use of, good data is the foundation for innovation and value creation. An unwavering commitment to environmental justice was the undisputable, yet unofficial, secondary theme of this year’s event. I would argue this important societal goal can be tackled alongside the transformation of the energy industry by using data and technology.

Decentralization Is Coming

Panelists on the plenary session roundtable for day 1 represented the major contingencies in the US utility landscape—a municipal, a retailer, and an investor-owned utility. From three points of view, these industry leaders agreed that decentralization is coming and “the traditional utility business model is obsolete, if not dead.” At Navigant, we have been articulating this time of market disruption as the emergence of the Energy Cloud. We are exploring how various platforms are creating value through business models built around a more dynamic relationship between energy supply and demand. The foundation of this new energy reality is digital transformation, in which data fuels business opportunity. Buildings2Grid (B2G) integration is just one of the platforms that illustrates the power of data in creating new business opportunities for utilities, as discussed in Navigant Research’s Building-to-Grid Integration report.

As one panelist put it, “Markets move at the pace of innovation, grid moves at the pace of regulation,” which can place a significant hurdle in front of a large proportion of our energy providers. So, how can utilities take a seat at the table in a new energy reality? It starts with data. Navigant Research took another look at utility opportunities in the Energy Cloud with a complementary report, Intelligent Building Technologies for Value-Added Services. The connectivity and data-driven insight of intelligent building solutions create the roadmap for redefining how commercial buildings operate and opportunities for new services to optimize energy use and generation. Or, as one of the more memorable lines from that Verge utility plenary put it, “great innovation is where megabits meet megawatts.”

Across the board, electricity suppliers are unified by a fundamental goal to keep lights on—to support reliable and resilient power. Intelligent building technologies provide a digital lens into commercial customer operations and a pathway to new engagement models for ensuring that power is reliable and resilient but also supports broader customer goals such as sustainability and operational efficiency.

 

Blog Articles

Most Recent

By Date

Tags

Building Innovations, Clean Transportation, Digital Utility Strategies, Electric Vehicles, Energy Technologies, Finance & Investing, Policy & Regulation, Renewable Energy, Transportation Efficiencies, Utility Transformations

By Author


{"userID":"","pageName":"Casey Talon","path":"\/author\/ctalon?page=2","date":"6\/24\/2018"}