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Surviving the crash: Offsetting asset devaluation after a global crisis

Surviving the crash: Offsetting asset devaluation after a global crisis

As property markets face an uncertain future, there really is no better time to start proactively offsetting the risk of asset devaluation.

As we discussed previously on this blog post and in this e-book, each year seems to bring an increasingly severe global crisis, and market disruption is now the only new normal. The past year has been an extremely challenging time for real estate, with large commercial buildings locked down and then reopened en masse. With more employees working from home than ever, coworking leases are being cancelled at an alarming rate and with no one to take the places of previous occupants, property value is coming under pressure, particularly as we head into autumn.

What does a global crisis mean to property owners, investors and managers in terms of practical cost however? Climate change will certainly impact property value in the next 30+ years, as the cost of protecting communities against flooding and wildfires will be an expense these neighborhoods and the taxpayer are certain to bear. And while property investors are still investing in high risk areas, locations like Miami Beach could be underwater in a matter of decades, causing untold damage to commercial portfolios around the world.

Real estate companies urgently need to act now to protect their investments. Even if your buildings aren’t at risk of flooding or natural disasters, a deeply uncertain property market and falling occupant demand still pose a serious threat to your commercial portfolio’s value moving forward. If we’re on the verge of a market crash, how many millions of dollars will your portfolio stand to lose?

Streamlining your operating costs and improve resilience for hard times

Investing in the right digital technology enables property managers to integrate building data, systems and equipment, creating actionable insights into asset and portfolio performance. With the right digital facilities management strategy, property managers can make agile adjustments to their building systems before, during and after unplanned operating disruptions, reducing operating and energy costs while still delivering a safe, comfortable tenant experience for essential workers.

Smart building programs drive revenue and often pay for themselves in energy savings and lowered utility bills. According to ENERGY STAR®, a 10% decrease in energy usage can lead to a 1.5% increase in net operating income (NOI), with even greater increases as the energy savings grow.

For Bill Lee, Senior Director Technology and Infrastructure of Gaw Capital, integrating smart building technology represents a perfect alignment of value and technological opportunity:

“It was a simple decision to use Switch Automation, because it makes sense financially. We brought one of our large buildings in the U.S. onto the Platform and found that the value created far exceeded the upfront investment. Right away, Switch delivered cost savings north of 20%. So, if we save $1M per year, our NOI increases by $1M – based on the cap rate, we increased the value of the building by $10M.

Not only are we driving cost savings and energy efficiencies but it also future-proofs the building, allowing us to integrate an infinite number of really interesting devices over time, like bio-threat sensors for example.”

Safeguarding your portfolio’s asset value in times of crisis

Given that building performance optimization creates 10 - 20% in average annual savings for our customers and vastly reduces carbon footprint, the reality is that creating a more efficient and connected portfolio only adds value through reduced operating costs, increased asset value and brand recognition. Smart building technologies make the environmental certification process less labor intensive by automatically collecting, error-checking and presenting the information necessary for submittal. Achieving green building certification positively impacts asset value and often outweighs the associated costs.

A study on occupational wellness from Ryerson University says “a comprehensive review of academic papers and industry surveys demonstrated both increased rental rates for sustainable and energy-efficient properties” and a willingness of a “70% of tenants to pay a premium.” In addition, the study also finds that sustainable buildings can deliver additional value in the form of “a cash rebate, reduced development charges or building permitting fees, or decreased tax burden.”

On the flip side, the UK Green Building Council observes that non-smart buildings that fail to comply with contemporary sustainability standards are losing value as a direct result. They argue that as “tenants and their agents understand that a good building shell is more likely to lead to better operational performance,” this leads to “price chipping on poorer performing assets which are in need of substantial investment to bring them up to minimum standards.”

The previous occupational wellness study also echoes this trend: “...poor energy performance has correlated with reduced rental rates, reinforcing the commercial importance of energy performance.”

Creating new revenue streams to boost profitability

Research indicates there's going to be more than 8 billion IoT devices operating in commercial buildings by 2022. All of this new data is expected to create new business models and new revenue streams that we have yet to imagine.

When the Google Maps API was created, the tech world had no idea how this invention would go on to form the foundation for countless groundbreaking location-based products in the following years, powering everything from Uber to Pokemon Go. Smart building tech is just as promising, and at this early stage it’s difficult to predict the vast range of ways this technology will go on to be utilized in the future.

Right now property managers could easily capitalize on this access to their own building data by creating healthy building data sets for their customers. For a premium, a large corporate customer could access their Indoor Air Quality (IAQ) & Occupancy data to use as they see fit, perhaps to enrich their internal and external corporate communications for example. Alternatively, property owners could offer this data to their customers as an additional perk in order to differentiate themselves in an increasingly health-conscious and competitive market.

Taking the first practical step on your smart building journey

As the property market faces an increasingly uncertain future, there really is no better time to start proactively offsetting the risk of devaluation. Continuing on in the same way as the last several decades is actually the riskiest option, leaving your portfolio and its assets at the mercy of unsustainable market forces. Even if your buildings survived the previous lockdown, why should we believe there won’t be several more in the coming decade?

Switch ensures compliance, resilience and transparency to navigate the new normal of uncertainty. Switch Dx³ scans and identifies connected building systems at regular, scheduled intervals, displaying device firmware versions, integration ports and protocols and identifies potential network security threats. This essential first step establishes smart building readiness and provides a solid foundation for building performance benchmarking and optimization.

Talk to a smart building expert to learn more about how Switch helps portfolio managers reach their sustainability goals.

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PUBLISHED
October 9, 2020
Switch Team
Switch Team
Switch Automation
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