Crunching the data from arguably the world’s smartest building – The Edge, Amsterdam – led to the tenant commissioning bespoke coffee machines with bigger milk compartments.
Analysis from the coffee dispensers found that milk-heavy cappuccinos and lattes were by far the most popular choices. The standard milk compartments were continually running dry and so a new design was put on order.
As a tenant, this kind of insight might not transform your commercial performance. But it demonstrates the level of detail provided by the ‘smartest’ buildings in today’s digital age.
It also shows how quickly the commercial property market is evolving and the standards owners will have to meet if they want to remain in the market’s vanguard.
For property owners, getting smarter means more than integrating sophisticated technology into their buildings. There are also changing market dynamics to assimilate into their business models and evolving risks to understand and manage.
Smarter but more vulnerable?
The Edge has 28,000 sensors monitoring and measuring metrics such as: occupancy, movement, lighting levels, humidity and temperature.
Most commercial properties do not house the same sci-fi level of technology, but many have infrastructure that connects to the internet such as CCTV, alarm systems, and air conditioning networks.
In one market study, an ethical hacking team demonstrated that penetrating these building management systems is often easier than commercial property owners think. Once in control of a particular system, criminals can then wreak havoc in all manner of ways.
Disarmed CCTV and security systems make theft easier. Control of one system can give access to other more central business administration systems, opening up the threat of data breaches. Hackers running the air conditioning system in a data warehouse could raise the temperature and put server functionality and data integrity at risk.
In addition to the cyber vulnerabilities created by smart technologies in commercial properties, there are also onerous regulatory responsibilities to shoulder regarding the underlying data.
Owners collect, hold and pass tenant data to third parties. The General Data Protection Regulation (GDPR) enacted this year has ramped up the responsibilities relating to how such data is used and increased the financial penalties for those that violate the rules.
The potential liabilities created by smarter buildings have marched out of the margins to become mainstream concerns for commercial landlords. As individual buildings and property portfolios are upgraded, these exposures must be assessed, quantified and mitigated. Existing insurance programmes should also be assessed to ensure they carry appropriate coverage for these evolving risks.
Demand for more flexibility
In addition to wanting smarter buildings, tenants are putting increasing pressure on landlords to provide mixed-used properties in which their personal, social and professional lives can all commingle.
Certainly, for new developments there is an increasing focus on this more flexible approach as PwC noted in its most recent “Emerging Trends in Real Estate” report, entitled: “Reshaping the future, Europe 2018”.
PwC’s article stated: “What is evident now is renewed enthusiasm for mixed-use developments that combine residential, recreational, commercial and cultural uses. The single-use residential blocks, suburban office districts and out-of-town shopping centres, which were geared to automobile access and have been the norm in most of our lifetimes, are increasingly seen as outmoded forms of development.”
As developers seek to build these fluid spaces, owners of existing properties are also under pressure to adapt their portfolios before they become dated and undesirable. Traditional office blocks, for example, are now being modified to incorporate in-house bars, gyms and/or restaurants for the incumbent office workers.
These mixed-use facilities create different exposures for landlords and tenants. Restaurants cooking food create fire risks, while gyms heighten the public liability exposure. Buildings that might have been virtually empty during the evening, are now active until late into the night, making the risk profile more complex.
But there are also potential upsides. Communal areas in offices and hotels, for example, can be converted and rented as co-worker spaces, maximising a building’s floorspace and increasing its yield.
Bringing a new mix of tenants into a building diversifies the number of sectors owners can target, helping to increase occupancy levels and develop new revenue streams.
Indeed, for owners that prioritise portfolio modernisation programmes PwC’s report says there is a chance to differentiate themselves in the market and create a commercial advantage.
PwC’s article comments: “Eventually, users of real estate may become as brand-conscious as sectors such as telecoms or retail, with people and organisations making location and property choices increasingly based on the brand strength of the business owning and operating the real estate.”
Creating loyal customer bases could create huge advantages when seeking investment for new developments and securing tenancies. However, it would also heighten the exposure businesses have to reputational damage, requiring them to asses and mitigate these risks.
The dynamics within the commercial property market have never been more fluid and there are myriad challenges for owners to face as they seek to keep pace with technology, changing tenant demand and evolving working patterns.
As property owners adapt to these evolving requirements they will have to ensure their insurance and risk management programmes are similarly updated and aligned.