Development FinanceNews

Property professionals not ready for smart building revolution

The UK is a decade away from a smart building revolution that will generate new revenue streams for business with three in four property professionals expecting to gain from it, according to new research.

However, less than a quarter have taken action to become involved and major mean progress will falter unless the property sector can better quantify the commercial benefits of smart technology and manage new areas of risk, says the report from law firm Charles Russell Speechlys.

It says that while 59% of property professionals think smart buildings will deliver business gains beyond energy efficiency, 74% think it will be up to a decade before challenges in capturing and accessing the data that fuels such developments can be resolved.

The research, based qualitative interviews with more than 270 senior developers, landlords, occupiers, advisers and investors, also found that 40% believe that the opening of new revenue streams will be one of the most significant gains from smart buildings over the next 10 years.

Some 72% are expecting to achieve financial gain from using data collected by the built environment. However, a quarter are yet to take any form of action to adapt to the development trend and just 14% claim to have taken ‘significant’ action, with 61% either only just now considering what they might do, or taking small steps.

The research report also shows that while more than 70% see opportunity for revenue growth through the data that smart buildings can provide, half remain unable to quantify it and this is one of the major challenges ahead.

Further, almost three in five landlords and developers are experiencing challenges in delivering a return on investment from their smart real estate assets. Changes to valuation models and leasing structures are predicted as a result.

Some 65% say smart buildings’ ability to capture valuable data will increasingly be factored in to valuation models, including three in five investors and three in four landlords and 67% of funders and advisers think they will need more data about buildings’ technology capabilities in future to assess investment and lending risk.

Two in three landlords, occupiers and developers believe all in one fees for rent, utilities, business and technology services will grow more and more popular and 55% think that there will be an increased demand for more flexible lease terms from occupiers over the next five years while 68% of occupiers, landlords and developers say future leases must be more flexible about co-sharing and subletting space.

Another major challenge is that 80% of industry is worried about building obsolescence as a consequence of the smart building revolution, rising to 91% among landlords. The report says that changing technological needs will be the driving factor of building obsolescence among existing stock according to 59% of industry who consider technological change more impactful than energy needs.

It adds that so called trophy headquarters will become less desirable for future tenants according to 54% of occupiers and 52% of developers, 63% think pre-21st century office and retail buildings will struggle to retain value, rising to 72% among developers and 37% of developers are actively considering how to respond to the risk of obsolescence, with a further 31% already taking action to future proof their business.

James Carter, managing partner of Charles Russell Speechlys, said: “Whether you are an owner or occupier, a builder or developer, or a technology provider, the built environment offers real opportunities for the forward thinking. In this report, we have explored the gains on offer and how they are likely to be exploited in coming years.

“Through a combination of deep sector expertise and clear legal insight, the report analyses the gains and opportunities and shows where some of the key legal pressure points lie.

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