Smart building programs drive revenue and often pay for themselves in energy savings and lowered utility bills. Yet it can still be a challenge to dedicate budget to this relatively new ‘line item’ in a traditional CRE plan.
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 a 500,000 square foot office building paying $2 per square foot in energy costs, reducing energy consumption by 10% can translate into an additional $100,000 of NOI. At a cap rate of 8%, a building owner could potentially boost their asset value by $1,000,000 simply by reducing energy use.
Large commercial property owners and managers often face operating expenses that run into the tens of millions of dollars. With so many portfolio owners focused on minimizing their substantial costs, the benefits of investing in technology are sometimes ignored. An austerity mindset can lead management to overlook opportunities to unlock additional asset value and reduce operating costs by harnessing devices the organization already owns. Or, if they do invest, it is often in short-term, cheap proprietary IoT solutions that necessitate expensive ‘rip and replace’ projects later.
Without a well-designed strategy, you run the risk of trialing a myriad of technology solutions and wasting both time and resources. With careful planning, however, you can forecast both early and long-term wins to capture the confidence and support of the broader organization. Below are the key steps to adapting one or more budgets for a new smart building solution:
1. Establish your smart building objectives
It’s critical to begin this journey with an end in mind, so identify your short and long-term program goals. What business objectives do you have for the next year, five years or even next decade? Perhaps you want to boost productivity or lower operational costs; maybe you want to attract top-tier tenants and investors; you might be looking for a better way to ensure regulatory compliance; or to gain a competitive advantage by improving your brand reputation. Additionally, you’ll need a clear understanding of your portfolio’s strengths and limitations to help inform your strategy and prevent unnecessary roadblocks. Use the Smart Building Implementation Checklist to establish your organization’s unique set of goals. Ask the right questions to avoid costly mistakes and understand which of your portfolio’s operations need improvement.
2. Appoint a smart building tech champion and bring the stakeholders on the journey
Identify a project champion to gain buy-in from all respective departments and ensure the procurement team is involved from the beginning. This person will need to have the clout and the ability to bring disparate groups together in support of this digital facilities management program. The individual will need to show a genuine passion for IoT technology as well as a grounded understanding of the day-to-day issues faced by your FM team – so choose wisely.
3. Draw a smart building budget from multiple departments
No separate technology or innovation budget? Fortunately, a smart building platform touches various aspects of building operations from sustainability, to IT, facilities management and tenant well being. Start with incremental budget adjustments across multiple departments so that expenditures are more likely to be approved. Take a look at your existing budgets and see if it’s possible to fold in a smart building program across multiple line items. Get creative and squeeze a new program into an existing category, such as energy, occupant comfort or maintenance.
4. Use data and proven use cases to project ROI and cost savings
Use your existing data and technology vendors’ case studies to project ROI and demonstrate the possible benefits across the organization. Report on estimated energy reduction and avoided maintenance costs. Plan on reducing unnecessary costs from unreliable vendors and premature equipment replacements. Consider intangible benefits like the time this initiative will save your team.
One large commercial portfolio spent $5.1M on Repairs & Maintenance and $3.7M on Utilities annually. A smart building program can reduce annual maintenance costs by an average of 5–10% and annual energy costs by 10–20%, reducing repair costs by an estimated $510K and utility costs by up to $740K. This is a $1.25M reduction in operating expenses across only two line items, even before considering Operations and Management costs.
Leveraging smart building tech’s tendency to pay for itself and then some will be key to establishing an independent budget. Using what and who you know to estimate and report on the benefits will not only add weight to your proposal but will also help to establish a powerful precedent for your organization. Finally, don’t forget about NOI when campaigning internally for a smart building program—a smarter portfolio adds asset value through reduced operating costs and creates scope for customer fee increases.
The future expansion of your budget
Consider pitching your future smart building program as an element of a larger strategic initiative to boost operational resilience and competitive differentiation across the organization. Making this campaign synonymous with a positive cultural overhaul will make the technology’s inherent benefits impossible to ignore.
Indeed, this technology should have a profound impact moving forward; a data-based approach enables high-level, informed investment decisions to support a diverse range of stakeholders. A centralized hub of data will make this approach straightforward and is sure to create the potential to expand your smart building program initiative for further wins in the future.
Read our latest E-book to learn how budgeting for and implementing smart building technology improves resiliency and increases revenue for real estate companies.