SINGAPORE (Feb 4): Digital technologies are revolutionising the way urban environments and buildings function and interact with each other, giving rise to a new type of building known as smart buildings.

In Singapore, real estate investment trusts are turning to smart buildings to boost income. CapitaGreen, which contributes around 23% to CapitaLand Commercial Trust’s (CCT) net property income, and Ocean Financial Centre, which contributed some 34% to Keppel REIT’s income in 2018, are examples of buildings that are using technology to drive performance.

CapitaGreen uses a smart air-conditioning system where air-conditioning for the office floors is provided via innovative technology that takes in fresh, cool, natural air from the crown of the building at lower energy consumption, providing tenants with better indoor air quality.

Ocean Financial Centre is fitted with an innovative paper recycling system for all offices. CapitaLand, CCT’s major unitholder, is experimenting with facial recognition and data analytics to better serve customers at its malls.

Smart buildings are essential components of any smart city project. They are an instrumental part of smart energy grids and serve as real-time adaptive platforms collecting data to feed increasingly sophisticated analytics. In the process, they foster productivity, efficiency and overall well-being of their occupants.

There is, however, one problem that has to be urgently addressed if the promises of the di-gi-tal revolution in the built environment are to fully materialise: Smart buildings still lack universal standards and a common language by which their performances can be assessed and compared.

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Need for smart building metrics and certification

Similar to green buildings’ widely used Leadership in Energy and Environmental Design certification, smart buildings have to come with commonly agreed norms and standards to certify their performance and guide commercial real estate players. Attempts to design evaluation frameworks have so far been hindered by the lack of consensus among multiple and diverse stakeholders — the private sector, public authorities, technology companies and real estate sector.

Faced with the need to accompany their clients’ digital transformation, corporations have been the first to develop their own set of metrics. A well-known corporate indicator of building smartness is the Honeywell Smart Building Score (HSBS) compiled by Fortune 100 American conglomerate Honeywell.

The HSBS covers three characteristics: greenness (environmental sustainability), safety (security of the building, its occupants, -users and owners), and productivity (through comfort and productivity enhancement for users and owners). These characteristics are captured by “active components” (for example, devices, software and analytics) on which Honeywell can add value. So-called “passive components” (that is, -architectural design, building location and building materials) are overlooked.

Hence, the HSBS seems to be best suited for property owners looking to smart up their buildings by using Honeywell’s solutions rather than those aiming for a holistic view of what a building should include in order to qualify as smart. Noticeably, scoring methodologies defined by corporations tend to be biased towards their sponsors’ product and service offerings.

Public versus private indices of smart buildings

The alternatives to corporate indices of smart buildings are public indices developed by professional bodies, industry organisations, academics and/or governments. These indices are usually closer to certification than simple scores. As many countries have adopted different key performance indicators (KPIs) for smart buildings across the globe, public indicators of smart buildings embody deeply rooted and diverging interpretations of smart buildings’ contributions to smart urban environments.

While Europe’s Smart Readiness Index promoted by the European Commission Directorate-General for Energy is geared towards sustainability, the US (with its Building Intelligence Quotient or BiQ) emphasises the performance and cost effectiveness of smart buildings. By the same token, Asian countries have adopted a wide range of indicators with very different KPIs. In South Korea, one of the global leaders in smart technologies, intelligent building indices focus on smart features only, as green features are assessed by a separate certification. In Japan, the focus is on services derived from smart features, whereas China emphasises system aspects.

Interestingly, Asia has been at the forefront of smart building index development. The first index of building intelligence ever published, the Intelligent Building index was introduced by the Asian Institute of Intelligent Buildings in Hong Kong in 2005. Its vocation is to develop Asia’s definition and standard for intelligent buildings. For comparison, in the US, the Telecommunications Industry Association, which gathers some of the largest information and communications technology (ICT) companies globally, has just announced that it will launch a smart building rating score in the coming months.

Irrespective of their KPIs, most existing scores encapsulate an engineering view of smart buildings. Such a view defines smart buildings as highly sophisticated, self-contained “machines” by emphasising their technology rather than their interactive dimension. Despite covering a wide array of elements, these public indices overwhelmingly ignore a building’s ability to interact with its smart urban environment, which is a source of both efficiencies instrumental to a smart city’s success (for example, buildings as prosumers in smart energy grids) and risks (for example, data breaches on connected ICT networks).

Hence, in their current versions, both private and public indicators of smart buildings fail to capture the complex and growing role that smart buildings will play in smart cities.

Importance of cyber-security in assessing smart buildings

One important dimension of smartness for all stakeholders should be cyber-risks posed by technologies embedded in smart buildings. The issue of cyber-risk concerns not only buildings’ occupants (with potentially catastrophic scenarios worthy of horror movies), but also corporations operating in this kind of space.

One should not forget that real estate has been targeted in numerous breaches of cyber-security in recent years. In a note entitled -“Cybersecurity — securing real estate assets in a digital age”, -ANREV (Asian Association for Investors in Non-listed Real Estate Vehicles) reports that in 2013, hackers gained access to debit and credit card records of up to 40 million of American retail giant Target’s shoppers through information stolen from the company’s heat, ventilation and air-conditioning operator. The total financial cost of the hack for Target is reported to have reached US$202 million.

As Internet of Things sensors and ever-more potent cyber physical systems get embedded in the very fabric of our cities and buildings, the scope and intensity of cyber-risks stemming from smart building technologies can be expected to increase exponentially in the future. Such threats should be clearly identified, assessed and known to potential users of smart buildings.

Sound and transparent smart building certifications will enable property owners to demand higher prices per square foot for their buildings, be they office towers or shopping malls. This will, in turn, positively impact their return on investment. A sign of things to come: CCT and CapitaLand Mall Trust, which have both embraced the notion of smart buildings, outperformed analysts’ expectations in terms of total returns.

Agreeing on what it means for a building to be ‘smart’ is therefore a necessary step towards promoting investments in this new and promising segment of the commercial property market.

Dr Patrick Lecomte is associate professor in real estate at the Henley Business School University of Reading (Malaysia). His research papers focus on digital real estate, BRI and Asean real estate markets, and real estate finance

As REITs turn to smart buildings, can we agree on what ‘smart’ means?

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