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Smart buildings: How IoT technology aims to add value

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Yesterday, the value of commercial real estate was all in location. Tomorrow, much of it will be in information—and how CRE companies can use that information to build relationships with customers and strengthen tenant engagement.


Technology is changing the most fundamental truth about commercial real estate (CRE)—that value is based solely on location, location, location. While it still matters, of course, that a space be close to customers, employees, and/or suppliers, information-based applications have the potential to add new ways for the CRE sector to create value for customers, differentiate from competitors, and even find new sources of revenue.

Specifically, the Internet of Things (IoT) is already having a significant impact on the CRE industry, helping companies move beyond a focus on cost reduction. IoT applications aim to grow margins and enable features such as dramatically more efficient building operations, enhanced tenant relationships, and new revenue generation opportunities. Consider the increasingly popular smart thermostats that intuitively adjust the temperature, humidity, and light based on residents’ preferences and climatic conditions.

While consumer IoT devices have drawn most press attention, it is enterprise-level adoption of the technology that will likely have the bigger impact on industry. Indeed, the CRE industry is perhaps uniquely positioned to implement the technology, using IoT-enabled building management systems (BMS) to make building performance more efficient and also use sensor-generated data to enhance building user experience. Gartner’s recent smart-city forecasts highlight the potential: “Smart commercial buildings will be the highest user of Internet of Things (IoT) until 2017, after which smart homes will take the lead with just over 1 billion connected things in 2018.”1 This not only allows CRE to expose wide segments of the population to IoT technology—it provides owners an opportunity to have direct conversations and relationships with building users rather than only with their tenants. For instance, sensors in shopping malls can help owners connect directly and offer services to end customers. This would lead to building relationships with customers as well as strengthening tenant engagement.


The IoT is a suite of technologies and applications that equip devices and locations to generate all kinds of information—and to connect those devices and locations for instant data analysis and, ideally, “smart” action. Conceptually, the IoT implies physical objects being able to utilize the Internet backbone to communicate data about their condition, position, or other attributes.2 (For more information on the technologies that power the IoT, see our primer, Inside the Internet of Things.3) CRE companies may find it most relevant to understand how various types of sensors can track features such as motion, air pressure, light, temperature, and water flow and then—with the Internet backbone—enable the BMS to autonomously sense, communicate, analyze, and act or react to people or other machines in a nonintrusive manner (see figure 1).

Figure 1

With the cost of sensors, data storage, and connectivity all falling,4 we expect more CRE firms to move forward in adopting IoT applications. A recent Deloitte Center for Financial Services study suggests that IoT technology has huge potential in CRE: In fact, sensor deployment in the sector is likely to grow at a compound annual growth rate of 78.8 percent between 2015 and 2020 (see figure 2 and appendix 1–2) to nearly 1.3 billion.

Figure 2

Using such sensors, the IoT promises to turn any object into a source of information about that object and its environment. This creates both a new way to differentiate products and services and a new source of value that can be managed in its own right. Realizing the IoT’s full potential motivates a framework that captures the series and sequence of activities by which organizations create value from information: the Information Value Loop (see figure 3). In the CRE context, the value created from the information generated by IoT-enabled buildings has the potential to widen the lens on value creation beyond location through a level of efficiency and effectiveness that could distinguish buildings within a marketplace from a desirability and profitability standpoint.


For information to complete the loop and create value, it passes through the loop’s stages, each enabled by specific technologies. Anact is monitored by a sensor that creates information, that information passes through a network so that it can becommunicated, and standards—be they technical, legal, regulatory, or social—allow that information to be aggregatedacross time and space. Augmented intelligence is a generic term meant to capture all manner of analytical support, collectively used to analyze information. The loop is completed via augmented behavior technologies that either enable automated action or shape human decisions in a manner leading to improved action.

Figure 3

In the CRE context, different types of sensors that track features such as motion, pressure, light, temperature, and flow create a vast amount of data around building operations and the environment. This information passes through a network such that various parts of the BMS communicate with each other and the vast set of structured and unstructured data can be aggregated on a real-time basis at a building, portfolio, and even metropolitan level. The aggregated information can be analyzed using different tools to develop descriptive, prescriptive, and predictive insights for building operations teams (both landlords and tenants). The loop is completed when the BMS demonstratesaugmented behavior in the form of increased automated actions related to monitoring and tracking, among other things, or influencing human decisions for both the landlord and tenant.

The amount of value created by information passing through the loop is a function of the value drivers identified in the middle. Falling into three generic categories—magnitude, risk, and time—the specific drivers listed are not exhaustive but only illustrative. Different applications will benefit from an emphasis on different drivers.


For CRE executives who have long looked to automate building maintenance activities, all the IoT hype may sound inflated: Is this just a new buzzword for old practices? But it may not be. Yes, CRE companies have been installing sensors and automating activities for some time, primarily aiming to realize the benefits of low-hanging fruit such as cost savings and operational efficiency through improved energy management and reduced personnel costs. Figure 4 depicts approaches to developing a connected BMS, each progressively more connected and integrated than its predecessor.

Individual BMS: Typically, CRE owners install BMS on a piecemeal basis to automate individual tasks such as elevator or lighting control;5 not surprisingly, owners then must collect and aggregate data from various places (see figure 4).

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