SHAPING OUR CITIES How Digital Technology is Disrupting Global Real Estate
GLOBAL RESEARCH REPORT SHAPING OUR CITIES
How Digital Technology is Authors: Disrupting Global Real Estate Léan Doody Zung Nguyen Vu Pooky Mitchell Real estate has always shaped cities, and Alannah McCartney technology has always shaped real estate. From the elevators and telephones that made Editors: the skyscraper usable, to the car’s impact on Nicola Hudson the suburbs in the 20th century, technology Brice Richard has an intimate relationship with space – Stephen Hill and with value. Léan Doody The skyscraper solved a real estate problem by allowing for large amounts of rentable space on comparatively small Contributing plots of land in places where land is expensive: city centres. companies: The advent of the motorcar allowed vast areas of land to be opened up for residential use, rapidly increasing Accenture the value of – and demand for – suburban and rural land. Allianz Real Estate Boston Properties Will digital technology have a similarly transformative effect on cities and real estate? At a city scale, the answer is yes CBRE Global – one only has to look at how online shopping continues Investment Partners to reshape asset classes like logistics, as well as the high Charter Hall street. But what about digital technology in the building; Eir will it be as transformational as the elevator? Goodbody This report looks at how the commercial real estate industry GRESB is changing and explores how new business models will Heden enable digital technology within buildings to create value. Investa IPUT ISPT Knotel KPMG Legal & General LinkedIn UBS University College London Urban Land Institute WeWork
COMMISSIONED BY IPUT PLC
Published November 2019 ISBN: 978-1-5272-5269-1 Copyright © 2019 IPUT PLC CONTENTS
Foreword Page 02 Executive Summary Page 04
Section 1 Drivers of Change
The climate crisis Page 07 New competition Page 10 Opportunity: what does this mean for landlords and developers? Page 15
Section 2 Towards Better Workplaces
User centred places and buildings Page 17 Sustainable and resilient assets Page 23
Section 3 Barriers to Uptake
Value proposition Page 27 Legacy systems and proprietary solutions Page 30 Technology leadership Page 31 Risk Page 31
Section 4 What Does This Mean for Real Estate?
New business models aligned with user experience Page 33 New approaches to technology Page 34 New leadership roles Page 39 2 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR FOREWORD CITIES Shaping Our City
IPUT takes pride in being an Irish real estate company with a 50-year track record. As the largest owner of offices in Dublin, we recognise our responsibilities and take our presence in the city seriously.
Niall Gaffney Chief Executive, IPUT
By investing in sustainable In formalising our development buildings and public realm, we strategy, we visited some of place an emphasis on people. the world’s leading office and mixed-use schemes – such as We are investing in buildings Broadgate and King’s Cross that enhance the occupier in London and Hudson Yards experience, enabling us to set in New York, amongst others. new environmental standards for We have seen the increased offices in Ireland and marking us prevalence of digital technology out as a landlord of choice. in these cutting-edge schemes and recognised the growth in Our business model has evolved, demand from both investors and and we are now developing a occupiers for more sustainable, number of major projects in efficient and environmentally For the past five years, we have Dublin city. This has prompted us friendly properties. strived to align our own portfolio to explore what are the drivers with best-in-class standards, of change in real estate and how Against the backdrop of a recognising our corporate they are shaping the projects we growing climate crisis, investors responsibility to our investors, are planning for our city. now want more detailed asset occupiers and wider society. We level data to evaluate the have made significant progress Over the course of the past sustainable performance of their achieving gold & platinum LEED decade, we have seen technology investments ensuring that the and Wired Score certifications disrupt business models globally companies they invest in are across our major holdings. Our with significant implications for socially responsible stewards own office became the first office the world of work. The real estate of their capital. In addition, in Dublin to be awarded WELL sector has been slow to embrace occupiers are seeking quality Certified Gold. this digital revolution, however office spaces and a greater this is now rapidly changing. investment in the public realm to attract and retain talent but with more flexibility within the office environment. 3 Foreword
Computer generated image of IPUT’s Wilton Park development in Dublin 2
As we commence the We would like to acknowledge the We have strived development of almost 65,000 contribution of Léan Doody and sq m of mixed-use space in her team at ARUP in producing to align our Dublin city centre, we recognise this report. We are also grateful “ portfolio with that now is an opportune time to the various contributors from for us to explore the key digital across the global real estate best-in-class drivers of change in the real world who were so generous standards, estate industry. We partnered in sharing their experiences with ARUP to evaluate the with us. This report sheds some recognising readiness of the industry to adopt interesting light on the challenges our corporate these changes and to learn how and opportunities facing the responsibility we could apply global best- real estate sector and how the practice to our projects for the property owners should begin to to our investors, benefit of our future occupiers reassess their business models occupiers and and support long-term returns and leadership over the next for our shareholders. decade. Our ambition is to ensure wider society we align our future plans with the learnings from this report. 4 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR EXECUTIVE SUMMARY CITIES Disrupting Real Estate
Commercial real estate The climate crisis is provoking Commercial property developers has been slow to adopt investors to look for more themselves are starting to wake up sustainable assets and more asset to the new opportunities unlocked new technologies. The level data will be needed to help by digital technologies, to manage traditional business model them evaluate the sustainable complex portfolios, make better of letting properties on a performance of their investments. informed development decisions, 10-20 year basis has not decrease project management Meanwhile occupants are looking demanded it. But things costs, and even extract more value for higher quality services and from the operations of complex are changing. more flexible real estate to attract properties. and retain talent – and they are increasingly seeing flexible office providers as part of the solution.
the real estate industry has been sluggish about adopting digital “ technology – one study puts it behind other industries by as much as five years
Pictured centre of image 1 Grand Canal Square, Dublin 2 5 Executive Summary
These changing business • Better occupancy data allows So what are the implications models, new technologies and for more understanding of new for real estate? pressures from occupants and space confi gurations and the • Organisations should take investors mean that there are productivity and satisfaction a more strategic view of user opportunities to use digital outcomes they enable. experience and the changing technology to deliver better • More informed portfolio role of asset managers to workplaces, for instance: management and reporting be curators of services for • Experience design and relies on asset level data about tenants, managing ecosystem placemaking allow for better the condition of buildings, of partners. They will need to understanding of the needs visualised by dashboards. decide whether to outsource or hire Service Designers and of people from their spaces • Despite these opportunities perhaps consider employing and how technology can help the real estate industry has a Chief Experience Offi cer. deliver great experiences. been sluggish about adopting For example, Knotel relies on digital technology – one • New lightweight approaches its tenant engagement app study puts it behind other to retrofi tting and construction to help their customers get industries by as much as mean buildings can be smart what they need, and help them fi ve years. There are multiple enabled without carrying out better understand how they reasons for this: the diffi culty costly systems integration. can design better spaces of upgrading legacy systems, • New types of leadership roles and experiences for their the conservative nature of will be needed to identify customers. the industry, and the lack of technology opportunities and alignment with real estate lead implementation. Some business models. organisations are hiring Chief Technology Offi cers as well as data scientists into their real estate functions. Ensuring privacy and security of data will be a key responsibility. 6 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR SECTION 1 CITIES Drivers of Change
KEY TAKEAWAYS • The climate crisis has forced all sectors and • Beyond the climate crisis, tenants and occupants industries to step up to take action. In order to are demanding more fl exible working spaces. safeguard investors’ portfolios and buildings The traditional ‘9 to 5’ workspace has changed against the threats of climate change and future dramatically. Tenants want spaces that can reporting requirements, more operational data encourage, inspire and attract a creative and is needed to assess these risks. Buildings must productive workforce, with services and digital be equipped to collect operational data. solutions that support that. User experience design is a key tool to create services.
Reception at Riverside 2, Dublin 2 7 Section 1 – Drivers of Change
What links Greta Thunberg and former WeWork CEO Adam Neumann? Both are figureheads for two forces reshaping commercial property: the climate crisis and the flexible space industry. This chapter sets the scene by introducing these key forces – the climate crisis and the changing nature of work – which are threatening to disrupt the familiar real estate business model.
The climate crisis Reporting requirements – on these answers in our moving towards more monitoring and management In May 2019, The Guardian disclosure of investments – for example newspaper updated its style around climate-related capex guide to recommend the term As Mark Carney, Governor of amounts and insurance risks.” ‘climate crisis’ in place of ‘climate the Bank of England warns, our Investors will need more asset- change’. Protest groups, such as global financial system is backing level data to better inform their Extinction Rebellion and School carbon-producing projects that assessment of these risks. Strike for Climate, are having will raise our planet’s temperature by more than 4° C1 by the year an impact on public opinion, as 2 evidenced by an Opinion poll, 2084, double the limit outlined in Risk analysis and mitigation conducted in May 2019 during the Paris Agreement. Regulation Extinction Rebellion protests, is set to increase. Over time, Despite the growing number finding that 63% of the United the European Union (EU), city of regulatory frameworks that Kingdom (UK) public agreed with governments and real estate require companies to report the statement “we are facing a companies have taken several on and disclose information on climate emergency”. Fast fashion influential actions to address their sustainability performance, icon Forever 21’s bankruptcy, these demands: there is still an overall lack of bans of single-use plastic straws, common reporting structures • On an international level, flight shaming, Burger King’s and frameworks. in May 2018, the European launching plant-based burgers – Commission adopted all sectors are beginning to step Understanding climate risks, a legislative package up to the challenge at hand. 2019 how to mitigate these risks and on sustainable finance may prove to be a watershed year the implications on real estate are aimed at asset managers where the recognition of climate proving to be a major challenge and investors, including threat and the push towards for investors and portfolio disclosure requirements for climate adaptation become managers. environmental sustainability mainstream. 3 and low-carbon benchmarks. Real estate is not immune to • In New York City, the City either the ecological threat Council has mandated its Sustainability is or the societal pressure to 14,500 least efficient buildings make changes, and real estate to accelerate efficiency both a risk and an investors are now starting to upgrades in order to radically “ opportunity today. wake up to the risks of global reduce their greenhouse The risk is mainly warming and climate change. gas emissions. For example, Allianz Real Estate around regulation has committed to making all of • In addition, the Governor of its investments climate-neutral the Bank of England, Mark and obsolescence. by the year 2050. As Olivia Muir, Carney, has stated that banks Opportunities Director for Asset Management should be forced to disclose include higher rents UK Ltd, within Multi-Managers their climate-linked risks within Real Estate at UBS says, the next two years, and he has and retention on the “Sustainability is both a risk and also said that more information occupation side and an opportunity today. The risk about these risks would is mainly around regulation and prompt investors to penalise lower costs for the obsolescence. Opportunities and reward firms accordingly. owner, for example include higher rents and retention • As Olivia Muir says, “We are financing on the occupation side and lower asking our fund managers costs for the owner, for example increasingly detailed questions Olivia Muir financing.” on sustainability issues and Director for Asset place a growing emphasis Management UK, UBS
1 https://www.theguardian.com/business/2019/oct/15/bank-of-england-boss-warns-global-finance-it-is-funding-climate-crisis 2 Xiaoxin Wang, Dabang Jiang, and Xianmei Lang, “Climate Change of 4°C Global Warming above Pre-industrial Levels,” Advances in Atmospheric Sciences 35, no. 7 (July 2018): 757–770, https://doi.org/10.1007/s00376-018-7160-4. 3 https://ec.europa.eu/info/business-economy-euro/banking-and-finance/green-finance_en 8
SHAPING OUR CITIES
Pictured above Earlsfort Garden, Earlsfort Terrace, Dublin 2
Rapid urbanisation means that premiums are typically evaluated More data is needed many of the assets which are on historical analysis and do held by real estate investors are not take future climate risks into Through the collection of data, in cities, which are particularly account. Assessing and pricing it is possible to observe, monitor vulnerable to the immediate climate risks is a developing topic and understand the impacts of effects of climate change. As within the insurance industry, climate change on real estate, our weather conditions become although the impact of these while also being able to predict more extreme, so too do the risks on the value of real estate future changes and optimise associated insurance costs. is difficult to measure.5 buildings appropriately. The In the United States (US), the key reporting benchmarks, economic costs of 2018’s 394 Corporate reporting is essential outlined below, are moving in natural catastrophic events for understanding climate risk this direction. amounted to US$225bn, with awareness. As the landscape insurance covering US$90bn for reporting climate-related • Currently, GRESB (Global of the overall total, creating the risks in real estate continues Real Estate Sustainability fourth-costliest year on record to grow, investors are beginning Benchmark) is a key of insured losses. In some parts to integrate environmental, benchmark used to collect of the US, insurers are refusing social and corporate governance comparable and reliable data to insure certain properties as a (ESG) data into their investment on the ESG performance of result of the increase in extreme decisions and corporate real assets. Launched in 2009 weather events. The insurance strategies. Real estate developers by a group of large pension protection gap (i.e. the portion play an important role in assisting funds, GRESB covers US$4.5tn of economic losses not covered) investors who take climate risks in real estate and infrastructure was 60% in 2018, the highest into consideration. Methods value and is used by more level since 2005.4 of data collection are likely to than 100 institutional become more sophisticated investors to monitor their It is widely understood by in the future so that the value investments, engage with investors that insurance is not an impact of climate risks can be their partners and, ultimately, appropriate method of evaluating understood and factored in 6 make decisions which will climate risks, as insurance accordingly. lead to a more sustainable
4 https://www.insurancejournal.com/news/international/2019/01/22/515420.htm 5 https://1eg3hu1iihkr2ga6vceuz7hb-wpengine.netdna-ssl.com/wp-content/uploads/sites/127/2019/02/ULI_Heitlman_Climate_Risk_ Report_February_2019.pdf 6 https://1eg3hu1iihkr2ga6vceuz7hb-wpengine.netdna-ssl.com/wp-content/uploads/sites/127/2019/02/ULI_Heitlman_Climate_Risk_ Report_February_2019.pdf 9 Section 1 – Drivers of Change
real estate industry. It relies Agreement. To date, 672 after an increased number of on participating real estate companies are taking science- investors began to ask about managers to self-report data based climate action. its sustainability goals and focusing on ESG performance, initiatives. These targets have • One example is Landsec, which energy, water, waste and affected its work across three manages more than 2.2 million greenhouse gas emissions. main areas: buying buildings, square metres of property, developing buildings and From 2020, reporting of asset- and which has committed level data will be mandatory. managing buildings. Since to reducing greenhouse gas implementing these targets, • In addition to GRESB, there are emissions by 40% per square Landsec has been able to several other benchmarking metre by 2030. The Science enhance its reputation and tools being used by real estate Based Targets Initiative has relationship with investors, as developers. The Science helped Landsec to set these it can be considered a better Based Targets Initiative targets and come up with long-term investment and specifies how much and how different methodologies for is future-proofed for further quickly a company needs to achieving them. Landsec investor requirements.7 reduce its greenhouse gas set itself the challenge of emissions to stay in line with becoming the sustainability leader in the real estate sector the goals set out by the Paris
In addition to creating tools and platforms with which real estate developers can collect these data, there is also a push to share this information in order to drive disclosure, insight and action towards a sustainable future.
The following initiatives encourage and support disclosing information related to sustainability reporting;
• The Carbon • The Task Force on • BREEAM is a world- • LEED is the most Disclosure Project Climate-related leading sustainability widely used green (CDP) is a not-for- Financial Disclosures assessment building rating profit organisation (TFCD) develops method used for system in the world. which measures voluntary, consistent masterplanning LEED provides companies’ climate-related projects, buildings a framework to environmental financial risk and infrastructure. create healthy, impact.8 disclosures for use The BREEAM highly efficient by companies in In-Use scheme and cost-saving providing information is used to assess green buildings. to investors, lenders, the environmental LEED certification insurers and other impacts and is a globally stakeholders. As sustainability recognized symbol of February 2019, issues relating to of sustainability more than 580 existing buildings. achievement. companies (which It recognises the are responsible for need to evaluate the US$100tn in assets) actual operational have expressed their performance of support for TFCD buildings rather than recommendations. that of the building as designed.9
As real estate developers are expected to keep up with these different benchmarking frameworks, these different reporting needs are producing a need to collect more operational data on the impact of critical sustainability issues – such as climate change, human rights, governance and social well-being in property and estates – which, at the moment, are difficult to gather and quantify.
7 https://sciencebasedtargets.org/case-studies-2/case-study-land-securities/#targetText=The%20targets,from%20the%20same%20 base%2Dyear 8 https://www.cdp.net/en/companies 9 https://www.assurityconsulting.co.uk/knowledge/guides/what-is-the-relevance-of-breeam-in-use-to-fm 10 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR CITIES Tenant demand New competition
A growing number of companies Beyond sustainability, tenants are committing to reducing and occupants are demanding their carbon footprints. Since a more responsive and flexible commercial buildings account workplace experience. This has for 39% of global carbon 10 been driven and enabled by new emissions, their efforts often competition from space-as-a- involve their buildings. For service providers, which have example, since 2009, Microsoft given tenants more choice in has committed to reducing the services and office experiences. company’s carbon footprint and As a result, landlords and is striving towards cutting carbon developers are starting to listen emissions by 75% by 2030. One more attentively to the tenant of the ways Microsoft hope to voice. This is forcing building achieve this is through building owners and developers to sustainable campuses and data provide a more outcomes-based centres. It hopes to remove fossil offer. Tenants do not just want fuels completely from these new an office – they want a space buildings and run the campus on 11 which encourages, inspires 100% carbon-free electricity. and attracts a creative and productive workforce. LinkedIn has also committed to 100% renewable energy and a 75% reduction in carbon What a good workplace emissions in its operations. means today As of 2018, 80% of its buildings are powered from renewable As many industries are sources. Within its buildings, beginning to move away from it aims to reduce waste during the traditional ‘9–5’ concept demolition, construction and of working environments, operation. To date, 60% of we are faced with the question LinkedIn’s offices have green of why firms still require office building certificates.12 space at all.
The flight-shaming movement, Firms still see quality office which aims to discourage people spaces as a critical asset for Nothing supplants from choosing to fly because enabling productivity, culture, one-to-one, of the environmental impact, recruitment and retention. has added a new dimension Attracting and retaining top “ face-to-face to reducing corporate carbon talent is critical to the success relationships. footprints. Solutions for reducing of modern companies. Office the environmental impact of spaces are thus expected to Although our business flights revolve around actively help enable a productive people can work and engaged workforce. As taking direct routes, flying anywhere, we economy or purchasing carbon organisations are faced with offsets to reduce their carbon accelerating and expanding want them to footprint. However, there is an change, and as automation want to come to opportunity for technology to advances, organisations aid in improving the connectivity and workplaces are placing the office. We try and collaboration of people from a premium on collaboration to design highly anywhere and at any time, with and creativity. the aim of decoupling business appealing spaces growth from environmental that will help drive 13 impacts. productivity and engagement
Jim Morgensen, VP Workplace, LinkedIn.14
10 https://americas.uli.org/wp-content/uploads/sites/2/ULI-Documents/Greenprint_PerformanceReport_VOL-10.pdf The Greenprint Performance Report 11 https://blogs.microsoft.com/on-the-issues/2019/04/15/were-increasing-our-carbon-fee-as-we-double-down-on-sustainability/ 12 https://socialimpact.linkedin.com/environmental-sustainability 13 https://www.raconteur.net/business-innovation/reducing-corporate-carbon-footprint 14 Arup interview 11 Section 1 – Drivers of Change
Pictured above IPUT’s offices overlooking St. Stephen’s Green, Dublin 2
To begin with, innovation in the placement of several entities are working remotely all the time. knowledge work comes through in one place, can become a It can be even harder to train and face-to-face connections and competitive advantage for mentor junior staff when there is chance encounters. “Ideas firms. However, as with cities, no face-to-face connection. spread more easily in denser there must be a balance. Good places”, Edward Glaeser workplaces allow people to It has become commonplace for summarises in The Triumph of meet others and find a space developments, large companies the City.15 While Glaeser speaks of belonging without feeling and co-working spaces to look of density as the competitive overwhelmed by the volume to start-ups for cues of good advantage of cities compared of others. workplace design. Ten years ago, with suburban or rural areas, the an open office with colourful same argument could be made Second, having a shared physical beanbags, ping pong tables, and for bumping into colleagues space is important for work beer on tap embodied the ideal within a dense office or bumping culture. While remote working space as imagined by start-up into potential clients in a dense offers flexibility, it can be more founders – twenty-something business district. Colocation, difficult to build a strong culture graduates straight from American and shared ethos when teams fraternity halls.
15 Edward Glaeser, The Triumph of the City, 1st ed (New York: Penguin Books, 2012) 12 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR CITIES
Pictured above Tropical Fruit Warehouse, Sir John Rogerson’s Quay, Dublin 2
As start-up culture matured, so Despite this, some companies did its taste in workspace design: feel that they must convince virtually all of these elements people to come to the office. It are now being phased out or is no longer acceptable for the abandoned. Open-plan offices, office to be just an open floor for instance, have received with rows of tables; it needs to the most intense backlash: be an enabler of collaboration, workers complain that they are of individual styles of working, distracting, with official studies a node in a global network. It finding that employees in open- should offer employees a chance plan offices spend 73% less time to feel part of something bigger. in face-to-face interactions.16 The Multiple user needs must be conversation has shifted towards considered: opportunities for defining what ‘good culture’ really wellness during the workday, is and how proper management moments for social belonging, techniques can get us there. and flexibility for teams to reconfigure spaces to suit Third, we cannot assume that all different work activities, for workers want to work remotely. example. Failing to deliver on Especially in big cities with high these expected needs will lead rent, many employees do not to friction, dissatisfaction and, have appropriate space at home ultimately, a decline in work in which to work. While having productivity and satisfaction. the choice to work at home can be a luxury, having nowhere to There are several cultural escape to can turn into a burden. shifts happening at a global For all these reasons, the role scale, which are converging of commercial real estate has to shape new expectations not diminished. Rather, it now for the workplace. The digital plays an even bigger role in transformation is changing how delivering on the strategic goals teams and people want to work, of organisations. allowing for personalisation, automation and insight.
16 https://www.bbc.com/worklife/article/20180718-open-offices-make-people-talk-less-and-email-more 13 Section 1 – Drivers of Change
Pictured above Reception at 10 Molesworth Street, Dublin 2
People are becoming increasingly Real estate developers and There are several open about personal challenges landlords are expected to adjust in the workplace and expect their current offerings and cultural shifts support from employers for their services to keep up with the new happening at a wellbeing and mental health. expectations and technologies “ The office is no longer simply a that are out there. There are global scale, which place to work; it is also a place for abundant opportunities for are converging socialising, relaxing and engaging smart technology and landlord with the surrounding community. services to support these shifts. to shape new And the global climate crisis has Space needs to be used in a more expectations for made people more aware of the strategic way in order to deliver the workplace environmental impact of their on the needs and expectations of actions in the workplace. occupants, and data can be used to achieve this goal. 14 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR CITIES
More landlords are adding “ short-term and flexible co-working spaces to their portfolios in response to demand from existing and prospective tenants for more flexibility
Pictured above WeWork office space
Industry disruption failed initial public offering (IPO) Many small-to-medium-sized in 2019 (largely related to the businesses and start-ups, which Space-as-a-service providers speed of its expansion and prioritise agility, do not want to and new platforms are meeting valuation model, rather than to spend resources on designing many modern tenant needs co-working itself), the underlying a workspace, updating furniture, and advancing them. Landlords model of ‘space as a service’ has managing facilities or even are beginning to respond with become mainstream and is here managing different contractors. their own space-as-a-service to stay. This will involve a different They want the flexibility to quickly offerings, but many have also approach to risk, design and expand or contract their footprint outsourced these flex space management. More importantly, without committing to fixed, offerings to third parties to it also involves a fundamentally long-term, upfront leases. They manage. different relationship with tenants also want access to other spaces – changing from hands off to when they do expand or contract. Flexible leases and much more hands on. They are increasingly interested co-working spaces in seeking out landlords (such as Knotel) that can provide all More value-added services More landlords are adding short- these services in one package, term and flexible co-working Employee engagement and and are willing to pay extra for spaces to their portfolios in talent attraction are also key the convenience. This offers an response to demand from concerns for tenants. As a result, opportunity to landlords if they existing and prospective tenants tenants are placing a premium on can design and deliver the right for more flexibility. However, given workplaces that offer community services to wrap around their that this is still a relatively new and learning opportunities. existing real estate. service for many, companies Meanwhile, excellent indoor require more granular data environmental quality and in order to create financial building infrastructure (lifts, projections and inform the future access, connectivity, etc.) are leasing strategy. Despite the becoming basic requirements. risks presented by WeWork’s 15 Section 1 – Drivers of Change
Better data occupants is an important data and behavioural user data, task. Enabling access to data the challenges of integrating Tenants today want to ensure that allows people to see trends smart building systems into they are making the most of the in how spaces, services and legacy infrastructure, and the costly space and services they facilities are being used and to mindset shift required when are paying for. Accessing data not explore opportunities for sharing it comes to considering user only ensures that occupants are information. experience and service design. getting value for money, but can also reveal interesting insights Opportunity: what does Landlords and building owners about business behaviours and are in the unique position of inefficiencies. Businesses want this mean for landlords being able to offer integrated data in order to understand their and developers? design around experiences own needs for space and to make – from the physical building better use of their space. This report focuses on the structure through to curated opportunities for commercial end user experiences for people Without access to data or the property landlords and in their buildings across space, processes to manage and take developers to use innovative technology and service. But this advantage of it, it is difficult to new digital services, digital requires a fundamentally different make effective change in real technology and data enablement approach to risk and a different estate and keep up with the to enhance their business. It relationship with tenants, from demands and expectations of also highlights the different the upfront sell to the ongoing occupants. Creating networks current risks and challenges that partnership. and feeds of communication landlords face – for instance, the between landlords and building need for improved asset-level
Businesses want data in order to understand their own needs “ for space and to make better Pictured below use of their space 10 Molesworth Street, Dublin 2 16 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR SECTION 2 CITIES Towards Better Workplaces
KEY TAKEAWAYS • The changing demands of investors and occupants has brought a great opportunity for real estate stakeholders to rethink creative and innovative solutions in order to improve effi ciency gains and additional revenue streams. A number of leading organisations are using digital and user experience to create buildings that are more sustainable, resilient and occupier focussed. 17 Section 2 – Towards Better Workplaces
The evolving demands of investors and occupants put new pressures on real estate owners, developers and landlords to begin thinking about how to adapt to these needs. These forces bring about a great opportunity for real estate stakeholders to rethink creative and innovative solutions in order to improve efficiency gains and additional revenue streams. This chapter looks at some ways that landlords and occupants are starting to use digital technology to enable new ways of working and sustainability, aligned with their current business drivers.
User centred places addressed (through technological unlock their hotel room doors and buildings and non-technological means) – and that provides operational significantly reduces the risks data to Disney World on people “There is a definite movement of technology investments. flows around the park. in real estate towards becoming This process, referred to as more like the hospitality sector. ‘experience design’, can support So, in a real estate context, There is a huge amount of a building throughout its design, the user experience of the competition to attract the best development and operation. commercial office should employees, and companies are contribute to enhanced According to a recent CBRE productivity, and to talent turning towards their buildings 18 to offer them that unique selling survey , one-third of tenant retention and attraction by proposition.” Achal Gandhi, Head companies have plans to hire creating better experiences for of Global Portfolio Management a User Experience (UX) Lead, people in those buildings. Some at CBRE Global Investors.17 and two-thirds would be willing companies, such as Charter to pay a premium for a building Hall in Melbourne, are hiring Today, a landlord needs to not in which the landlord had Chief Experience Officers to only satisfy the needs of the provided an enhanced UX offer. ensure that building design and 19 tenant’s Chief Executive Officer This is up from 18% in 2018. operational decisions (including and Vice President of Real Estate User experience design seeks to building technology decisions) in a company, but also needs design spaces and services by are driven by user experience. to design services for a wide understanding user needs and range of users – a role that many data in order to create a better This approach only makes landlords are not equipped to human experience and contribute sense for the landlord where take on. But what do users expect to wider strategic goals. The it is aligned with a business from a good workplace, and how pioneers of user experience model that rewards the landlord can developers and landlords use design and placemaking in the for tenant retention. This is digital technologies and services built environment context have why co-working and flexible to meet these expectations? been visitor attractions – from space providers have seen such museums to theme parks – growth – as tenants can take Some landlords and tenants are because their whole raison short leases and pay for services turning to user experience design d’être is to sell an experience of as they need them, the flexible and placemaking to understand a place. For example, in 2013,20 space operators are incentivised what occupants need, and are Disney launched its MagicBand, to take the time to design good designing services to meet their a wearable device that allows experiences for tenants. Knotel needs. Understanding the current guests to gain entry to Disney is a good example where its and future needs of a building’s World, access attractions, make business model is aligned with users and how they can be purchases at restaurants, and the needs of its tenants.
There is a definite movement in real estate towards becoming more like the hospitality “ sector. There is a huge amount of competition to attract the best employees, and companies are turning towards their buildings to offer them that unique selling proposition Pictured Opposite 47-49 St. Stephen’s Green, Achal Gandhi, Dublin 2 Head of Global Portfolio Management at CBRE Global Investors
17 Interview with Arup. 18 CBRE 2019 EMEA Occupier survey. 19 CBRE 2019 EMEA Occupier survey. 20 https://www.fastcompany.com/3044283/the-messy-business-of-reinventing-happiness 18 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR CITIES Digital supporting landlord employees which would not A core part of the Knotel flexible space: Knotel have such a strategist in-house); experience is its tenant these workplace strategists help engagement app. Customers Knotel caters for mid-sized companies to lay out space in use it to report problems, book companies that want to see order to maximise employee rooms, and interact both with the their own names above the productivity. Knotel then space and directly with Knotel. It door; it rents out entire floors operates the space according includes user-facing information to companies, rather than to its service agreement, thus (e.g. Wi-Fi codes, post, recycling), subdividing the space. It saving customers the trouble and it makes it easy to on-board specialises in providing space of managing multiple contracts new staff. It is also a useful source in city centres – areas that and service providers. Customer of data for asset managers and are in high demand and are satisfaction is key to lease designers, and it guides them on usually quite expensive. Knotel renewals: “Our business model what they need to pay attention customers want office space is aligned with the lifecycle of our to when planning space. where their talent wants to be, customers’ businesses – we want and therefore their space needs them to stay with us as they grow Other examples of workplace to be more productive in order and change, either in their current design and technology have to offset rents. location or somewhere else in our been primarily driven by portfolio. We want our customers occupants in order to improve Knotel helps customers to make to be satisfied, so that we can their own utilisation and staff their space more productive. serve them over the full life of productivity. Examples on the Their workplace strategists their business,” says Chris Namih, next page from Adobe and work with customers (often Head of European Expansion at Google illustrate this point. companies with 200–400 21 Knotel.
Our business model is aligned with the life cycle of our customers’ businesses – we want them to stay with “ us as they grow and change, either in their current location or somewhere else in our portfolio
Chris Namih, Head of European Expansion, Knotel Pictured below Knotel Paris
21 Arup interview. 19 Section 2 – Towards Better Workplaces
In the past we relied on “ people telling us what they think they do, now we can get hard data that tells us how people are really using the space
Jim Morgensen, VP Workplace, LinkedIn
Google Campus Warsaw
Activity-based working assisted Going further, LinkedIn is will be “remote” — made up of by occupancy sensors: Adobe deploying sensors and using new hires that can live and work anonymised Wi-Fi triangulation anywhere. Office workers are reacting to understand occupancy and against homogeneous open patterns of use, so that it can People increasingly want the workspaces, which they design its workplaces better. option to work remotely or from consider to be distracting and “In the past we relied on people the office, while still feeling to prevent collaboration. From telling us what they think they part of a bigger team. This will an organisational point of view, do, now we can get hard data increasingly be a concern as as rents become increasingly that tells us how people are organisations seek to reduce expensive in sought-after city really using the space,” says their carbon footprint by reducing centre locations, office managers Jim Morgensen, VP Workplace the amount of business travel want to optimise spaces and for LinkedIn. their employees must do. Remote increase utilisation. Activity- working can also reduce costs, based working allows teams as companies require a smaller and individuals to choose where Remote work, assisted by real estate footprint the more to work, flexibly, depending on wireless audio/video: Google employees work remotely. the task at hand. However, it is vitally important According to a recent study, to maintain strong personal 70% of permanent employees Sensing data can support relationships and culture for work remotely, away from their activity-based working by remote workers. main office, at least once a informing people of which office 22 areas are free to be used, thus week. Meanwhile even while To make remote collaboration enabling agile collaboration. in the office, more and more seamless, all of Google’s offices Adobe’s new London space work involves collaboration are equipped with its custom has sensors under each desk with colleagues who are wireless hardware which enables and different types of social working remotely, either from people to log in to a conference spaces, enabling people to know other offices or elsewhere. directly from a Google calendar what space is free. Companies Some organisations are even invite and hangouts. The such as Workplace Fabric have establishing themselves as speakermic, custom designed created signage screens for distributed companies. Stripe, and built by Google, intelligently users to obtain live information a $35bn online payments reduces echoes and actively about available spaces; this company, is built as a distributed manages background noise to information is displayed on a company with “hubs” in San deliver rich, immersive, crystal managed signage screen in the Francisco, Seattle, Dublin, and clear 360° sound. In huddle office. Through a clear, colour- Singapore. Earlier this year, Stripe rooms, ‘Meet’ hardware can coded format, users can use this announced that its fifth hub automatically zoom and crop data to instantly locate suitable based on the number of people workspaces on the floor. in the room.
22 https://www.cnbc.com/2018/05/30/70-percent-of-people-globally-work-remotely-at-least-once-a-week-iwg-study.html 20 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR CITIES Going beyond this, Jim master plans. Free from the project spans 1.7 million square Morgensen of LinkedIn would constraints of legacy systems, metres of high-end mixed-use like more automation of these new smart districts, such as commercial and residential kinds of tasks – perhaps using Toronto Waterfront or Hudson space. At the project’s outset, the AI and sensors to support a Yards, have the power to imagine developers had grand ambitions seamless user experience of what an ideal vision could be of using smart technology collaborating with people across from scratch, and push for more primarily to create energy many locations. “We would like radical use cases. However, these efficiencies and sustainability. It the system to take care of picking districts also offer some lessons was envisaged that Hudson Yards the right room, recognising and for where smart technology would have an on-site microgrid connecting people automatically, needs to include careful and gas-fired microturbines to providing the right air quality, consideration of community, generate both hot and cold water, lighting, air flow for the number privacy and social context. as well as sufficient electricity to of people in the room – making keep the lights on during a power an enjoyable and seamless outage. A system of sensors and Hudson Yards: visitor experience for our people.” apps – developed in partnership experience use cases are quick with New York University’s Center wins, but need to be considered So much of this productivity for Urban Science and Progress thoroughly and experience-enhancing – will provide an unprecedented technology is deployed by New York City’s US$20bn flow of data for the Center for occupants. But what is the role of Hudson Yards development Urban Science and Progress’s the landlord in enabling this in the on Manhattan’s West Side is researchers and Related’s building, and in the wider arena the largest private real estate analysts to pore over. of placemaking across a city development in the history of precinct? We see some of these the US. Co-developed by Related ideas pushed to much more and Oxford Properties Group, the extreme versions in new district 21 Section 2 – Towards Better Workplaces
These visions have been Rather, Related and Oxford Electronic Frontier Foundation, successfully implemented Properties Group turned its an international digital privacy to varying degrees. The attention to smaller experiential advocacy group that campaigned hybrid service model for a initiatives, partnering with the against LinkNYC, said that infinite large microgrid, developed in New York-based company data retention periods are a “red conjunction with Con Edison, is Intersection (which counts flag” for data privacy and the seen as an innovative model that Sidewalk Labs as an investor) to rights of individuals who do not could open up new options for integrate several straightforward opt in to the technologies – for large developments to combine smart features once a building example, being filmed. “This kind locally produced energy with has tenant employees in situ. For of technology, absent community support from the grid. However, example, an app will let tenants control, can be pernicious,” the initial promises of urban track packages, pay rent, or make Buttar said. “It might be a private data-driven management have concierge requests. Currently, neighbourhood, but it’s still no (so far) proved more aspirational biometric fingerprint sensors more respectful of the individuals than practical and have been allow office workers at 55 Hudson that are in it.” put on hold. According to Jay Yards to speedily move through Cross, President of Related, the lobby’s security system. Lessons from Hudson Yards Hudson Yards, “We concluded Touchscreen kiosks provide that big data is probably the last visitors with everything from Chasing after a grand ambition thing we’ll get to. It’ll be years basic wayfinding to tickets for of complete data collection from now before we’re in that 30 Hudson Yards’ observation and storage might be a costly world.” Technology has changed deck. These use cases provide distraction for developers, given rapidly in the decade since the property developer with the high costs, privacy concerns planning began, Cross notes, and immediate quick wins and tenant and unclear use cases. Rather, running data feedback loops or satisfaction. developers should focus on grappling with privacy concerns getting the user experience right However, the kiosks’ application is not something the real estate – identifying several high-value in Hudson Yards still leaves company is equipped to tackle. use cases where they can pilot something to be desired. smart technology and develop They resemble LinkNYC’s free the right data management Wi-Fi kiosks, bearing the shape protocols. These use cases need of supersized phone screens to be considered early on in order and doing little to activate to have maximum impact. This the space or truly encourage will create ‘quick wins’ for tenant community engagement with satisfaction and will also result the development. They were in upskilling the organisation, largely conceptualised in a generating valuable lessons utilitarian manner and, like about technology development LinkNYC, have raised a whole and data management. slew of data privacy concerns. Shahid Buttar, a director at the
This kind of technology, absent community control, “ can be pernicious... It might be a private neighbourhood, but it’s still no more respectful of the individuals that are in it
Shahid Buttar, Director Electronic Frontier Foundation
Pictured left Vessel by Thomas Heatherwick at Hudson Yards 22 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR CITIES
The role of the asset manager “ will change to be more data driven and they will become curators of key services
Grigor Hadjiev, Head of Special Projects, West Europe Allianz Real Estate
Understanding the dynamic citizens’ desire for convenience relationship between people, in new models of retail, with place and technology supporting infrastructure (logistics), as well as in new In cities, technology platforms models for town centres? such as Airbnb, Uber and JustEat are changing land use and Another example is the growing mobility systems and making trend for more prepared food new services possible, even while delivery to homes and offices. they reshape labour markets Some restaurant chains are now and industries. City governments making decisions about where to are using digital technology locate based on how easy it is for and data to address congestion, delivery vehicles to reach them. upgrade lighting, save energy and Pedestrianised town centres are empower communities. Citizens no longer attractive. Like retail, rely on their smartphones to restaurants will need to raise their navigate, pay for transport, game to offer better experiences access entertainment, shop and and better surroundings – generally reduce friction in their otherwise they are potentially urban lives. competing with people’s homes. Chain restaurants will probably At a city level, however, the use be most affected in terms of a of technology has had very requirement for different spatial real impacts on how space is layouts. The logical extension organised, configured and used. of this for chain restaurants in For example, the impacts of particular is that they are opening online shopping include changes ‘dark kitchens’: standalone in the use of high streets, kitchens in locations with lower increased need for logistics rental costs and good access for parks, and increased traffic delivery vehicles. from deliveries. In the UK, the retail stalwart Marks & Spencer As online and physical spaces has closed 100 shops across converge, the impacts on the country in response to its cities will continue. On a more decreasing need for physical granular level, there will be more space – 33% of its clothing is now technology in the public realm sold online. As Marks & Spencer as more IoT and smart city is typically an anchor tenant on solutions are rolled out in our local high streets, this is leading cities. Our city plans will need to to further challenges for town accommodate these spatially, centres. How can planners and but also at a technology systems, urban designers accommodate data and policy level. 23 Section 2 – Towards Better Workplaces
Sustainable and This prompts new questions As is the case with experience resilient assets about what services tenants design, the pioneers in using data need and how landlords can to understand customers and “The role of the asset manager ensure that those services are their needs are the co-working will change to be more data provided in their buildings so and flexible space operators. For driven and they will become that they retain existing tenants instance, WeWork has created curators of key services.”23 Grigor and attract new ones. This will a tool called Polaris to help the Hadjiev, Head of Special Projects, require strategic partnerships organisation become better at West Europe, Allianz Real Estate. with companies and co-working listening by constantly tracking, operators who can operate cataloguing, and sorting nuggets When the average lease the buildings. But, in order to of user insights sourced from was 10–20 years long, asset understand what services are hundreds of continuous user management was fairly passive. needed, landlords will also need research interviews globally. Now that tenants are asking for to have a firm knowledge of how more – shorter leases, as well the building is operated so that Optimising energy and as more flexibility, services, they can identify the valuable environmental performance has technology and sustainability – it services for their tenants. This been a bigger driver for landlords. is more challenging to maximise will require the right data and the Improving the sustainability assets to provide a good return right insights in order to steer and energy performance of on investment. stakeholders and implement new their buildings and providing business models. better customer service around facilities, has pushed some landlords to deploy platforms to better understand how buildings are performing and take action to fix issues. Pictured below 1 Grand Canal Square, Dublin 2
Pictured above Caption to go here
23 Arup interview. 24 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR CITIES The Crown Estate: 2. Healthy places and habitats: The Crown Estate’s managing understanding building By 2030, to be creating healthy agents, BNP Paribas and JLL, performance places where customers, are now able to use this systems employees, communities and analytics software provided As one of the largest property natural habitats can thrive. by Demand Logic to identify managers in the UK, The Crown actionable insights across a 3. Super-efficiency: By 2030, Estate has a portfolio worth number of key assets. Additional to have closed the waste £14.3bn in commercial, industrial building management system 24 loop using circular economy and agricultural real estate. The (BMS) specialist maintenance Crown Estate has set out three principles. 25 labour is available (over and major aspirations for 2030 in In order to better understand how above the standard scheduled conjunction with its Development its buildings are performing, The maintenance) to respond to the Sustainability Principles: Crown Estate deployed Demand issues that are raised, which to Logic, a software tool that date have focused primarily on 1. Climate-proof business: By provides live data intelligence optimising plant run-times and 2030, to be climate resilient, on how a building operates. comfort conditions. In addition, with portfolio decarbonisation This was used to gather, analyse the systems analytics approach and effective climate change and visualise operational data has supported a range of adaptation in place. across The Crown Estate’s remedial works projects delivered Central London portfolio, a mix by the managing agents, working of old and new buildings.26 in partnership with Arup. In these projects, systems analytics data have been used both to target remedial works in problem areas, and to validate the outcomes.27
Another company with big sustainability targets, Landsec, claims that it could save 10–15% in energy usage per year with Demand Logic’s tools. And Microsoft has been working on energy saving solutions for several years: “Around 60–70% of the Microsoft campus has unified, integrated dashboards and reporting. We use this dashboard information to monitor our systems [and] see if we need to send out a technician… Our energy smart building software tells us the 500 most expensive faults, in a descending order of dollar value. And it predicts potential cost savings – for example, if we were to fix a certain issue, it would save us $5,000 a year. These faults auto-generate a work order for issues to be fixed remotely or dispatched to an on-site technician.”28
Pictured left Cleveland Row, London
24 https://www.thecrownestate.co.uk/media/3189/22668_the-crown-estate_ar_2019-interactive.pdf 25 https://www.thecrownestate.co.uk/en-gb/our-business/sustainability/ 26 https://youtu.be/DznXc41xnDs 27 FM 2.0. 28 https://www.microsoft.com/itshowcase/Article/Content/845/Data-analytics-and-smart-buildings-increase-comfort-and-energy-efficiency 25 Section 2 – Towards Better Workplaces
The latest innovation in understanding building performance space is the concept of a digital twin. Although the idea has been around since NASA created it in the 1970s, it has only recently been adopted by the real estate industry. The concept is that a digital twin is a model of a physical asset which allows physical and digital assets, humans, digital humans and social environments to exchange data. The purpose of a digital twin is to monitor and evaluate a building’s performance in real time, in order to derive insights for decision-making. But the digital twin concept can be interpreted and implemented quite broadly. The ultimate aim is to be able to apply AI and machine learning to automate and manage building functions. We are quite far away from achieving that goal.
Arup is currently involved in the construction of a digital twin of the Dutch Government’s County Hall building in The Hague – a replica of an office building of Pictured above around 16,000 square metres. Air Street, London The process has involved the following steps. First, more than 30,000 data points from the is a unique building. There is no are required in order to realise existing building management reference building against which the potential benefit that the system (BMS) were extracted. to compare it. But, by building technology offers. Second, a further 350 IoT a virtual twin of the building, sensors were added; these we can obtain an exact copy of One example is Facilities were specifically tailored to the building against which to Management. Having more data measure user interaction. Third, compare real-time data. This about the building systems is not the dimensions of the physical reveals not only whether the useful unless the maintenance building were translated to the building is consuming too much contractors are also incentivised virtual world using 3D scanning, energy, but also how much more to use that data to identify and were linked to a scientific than it should be, and where and implement improvements simulation model being fed with exactly the energy leaks are proactively, instead of sticking to the sensor data. located. their schedules of tasks. Because they can look at their data more The province, South Hague (in regularly and more granularly, which The Hague is located), A different approach to they can make business and aims to have its buildings operations operations decisions based on energy neutral in 2040. The proven and informed data. In this Government’s strategy to achieve Digital will modestly change the way, there is a behavioural shift this is twofold: it will optimise way we design buildings; the in the way that maintenance is current functioning of buildings, significant changes will really be practiced which is technology while renovating, uplifting and in how buildings are constructed enabled. Not only will this save transitioning where needed. and in particular how they are on costs, with reduced labour But, as with any building, energy operated. The primary challenge and time resources, but it will meters do not indicate whether here, as with many aspects of also allow landlords to focus on the current building is consuming digital transformation, is not so enhancing their assets to be too much energy. Furthermore, much the technology itself, but more sustainable, as opposed to like any other building, the more the commercial, contractual just making them fit for purpose. Province House, in the Hague and behavioural changes that 26 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR SECTION 3 CITIES Barriers to Uptake
KEY TAKEAWAYS • Real estate is one of the most heavily under- • A key reason for this is that value propositions for digitised sectors. As the technology community digital solutions are not aligned with mainstream are quick to come up with tech solutions, such as real estate business models – although the rise PropTech, there is still a mismatch between the of fl exible space operators and the need for more solutions being developed by tech vendors and operational data will change this. Proprietary how they are deployed. technologies, little technology leadership and risk appetite also play a part.
The Edge, Amsterdam 27 Section 3 – Barriers to Uptake
To this day, real estate remains one of the most heavily under-digitised and conservative sectors. According to Bran Ferren29 and a CB Insights report,30 the global industry is lagging behind the curve of IT-based innovation by as much as five years. Insights from the KPMG Global PropTech Survey 2017: Bridging the gap show that as much as 66% of respondents did not have a digital strategy for their enterprise31 – quite an alarming proportion given the need for digital transformation across the industry.
Meanwhile, the technology Value proposition As illustrated by JLL’s 3/30/300 vendor community is developing (utilities/rent/payroll) research,33 a plethora of PropTech solutions The use of digital technology the most significant cost to a across the real estate value to deliver data and services company occupying a building chain, including smart building in buildings has not been well is not incurred through utilities solutions. ‘PropTech’ is the aligned with traditional landlord or rent, but rather through somewhat catch-all title given to business models. Typically, payroll in the form of lost anything tech related in the world many landlords maintain a small productivity. Considering that of real estate, and the concept portfolio made up of large, improving human productivity has seen a lot of hype over the long-term leases, with terms of far outweighs the cost-benefit of past few years. The investment up to 10–15 years. At the end of optimising energy consumption, numbers are starting to match each long lease, it is often in the it is easy to understand why the hype: 2018 saw investment developer’s interest to find new landlords and operators have in PropTech increase to the tune tenants, given that rent has likely been lacking the incentives of US$20bn, exceeding 2017 significantly increased over those to avail of PropTech solutions, figures by 38%.32 Projections for 10–15 years, and the developer given that, until recently, the the end of 2019 forecast that will be able to negotiate more available technologies primarily investment funding will be on par favourable terms in the new focused on energy savings and with 2018 amounts, if not exceed lease compared with the existing optimisation. 2018 figures by as much as 40%. one. Roles such as facilities management, complaints and However there is still a mismatch customer service are outsourced between the solutions being to third-party providers who developed by the technology provide basic services. Unless vendors and what is actually the landlord has particular needs being deployed in commercial for differentiation or data-driven We are using buildings. operations (for example, The Edge building in Amsterdam 21st century There are four main reasons and similar buildings elsewhere), for this: “ technology to digital buildings have not been reinvent 20th • Value proposition not aligned mainstream. with current real estate century real business models estate rather • Legacy systems and than using proprietary solutions/vendors it to provide • Lack of technology leadership the solutions • Risk needed in the 21st century
Yolande Barnes, Chair of the Bartlett Real Estate Institute UCL
29 Realcomm Conference Group, “Realcomm | IBcon 2015 Announce Keynote Speakers; Renowned Technologist, Bran Ferren, to Headline,” news release, 13 May 2015, https://www.24-7pressrelease.com/press-release/406551/realcomm-ibcon-2015-announce-keynote- speakers-renowned-technologist-bran-ferren-to-headline. 30 CB Insights, Funding To Real Estate Tech Startups Skyrockets In First Half Of 2016, (2016), https://www.cbinsights.com/research/real-estate- tech-startup-funding-trends-q2-2016/. 31 KPMG, KPMG Global PropTech Survey 2017: Bridging the gap, (2017). 32 https://www.ft.com/content/1c6e4c38-ef57-11e9-bfa4-b25f11f42901 33 https://www.us.jll.com/en/trends-and-insights/workplace/a-surprising-way-to-cut-real-estate-costs 28 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR CITIES But as discussed in Chapter 1, tenants have new needs for their commercial real estate. They want spaces that enable productivity, that entice employees to come to the offi ce, and that are highly sustainable and fl exible. They are increasingly looking for a mix of permanent and fl ex space, with services that enable their employees’ productivity.
Current market conditions are putting pressure on a landlord’s top line. Today’s vibrant start-up landscape means that a large number of premium renters are small growing businesses who could either scale exponentially within fi ve years or disappear completely. Even established fi rms are adopting an agile 10 Molesworth Street, Dublin 2 mindset and seeking to rent a mixture of fl exible/short-term spaces alongside traditional long- term leases. The consequence is A word about data Companies such as Boston that landlords have a larger and Properties have new roles, Having data is not enough. more diverse portfolio of leases, including Director of Data Many organisations sit on large which combine a mixture of Services and Enterprise Data amounts of data – which are fl exible and fi xed rentals. Architect, for experts in working costly to collect and store – with and handling data. On top of that, companies like without being able to access WeWork and Knotel are raising them or actually make good Looking at quantitative data alone the bar for competition and use of them to solve problems. also cannot help companies solve attracting the most premium To make the most of data, problems. All tech companies tenants by off ering bundled companies need clear goals, combine qualitative user research services, ready-to-use tech targeted research questions and (small sample) with big data features, and fl exibility for a the ability to iteratively translate analytics in product design, premium price. These market research questions into action as they serve complementary shifts prompt developers to (and vice versa). According purposes: user research consider how customer- or to Grigor Hadjiev, Head of generates hypotheses and service-oriented they wish to be Special Projects at Allianz Real identifi es problems, whereas big and, depending on this decision, Estate, “Having data is core to data validates fi ndings at scale, which client segments they want our business, but data is not quantifi es impact and predicts to serve and what services these useful unless you ask precise future behaviours. Qualitative clients might require. questions that can infl uence data can come in the form of actual decisions.” Furthermore, user feedback, and is essentially the data that’s presented to a form of deep listening to every user needs to be reliable. building users. Knotel uses the The speed with which a user will anonymized data collected lose confi dence in unreliable through its app to design better data is signifi cantly higher than spaces for its customers. the speed with which they will regain confi dence once that data becomes reliable again.
Having data is core to our business, but data is not useful unless you ask “ precise questions that can infl uence actual decisions
Grigor Hadjiev, Head of Special Projects, Allianz Real Estate 29 Section 3 – Barriers to Uptake
The ethics of data is another area Although it is widely posited and ensuring that value can be which needs further discussion. that ‘data is the new oil’36, extracted from data beyond what The ethical implications unlike oil, data currently really could be created within individual of widespread use of new only has value in the business companies. There is also a technologies are not agreed silos where it was generated. need for privacy and regulation upon. Undeniably, however, there Pricing mechanisms for valuing to create trust – and open the is increasing disquiet about data are only just emerging. way to data sharing. One such privacy and the use of personal This is particularly true for new initiative is Icebreaker One, which data to target people for political data sources such as realtime aims to “bridge the data gaps or commercial ends. Privacy, trust data from sensors or social between finance, assets, policy and surveillance are key issues, media. Exchanging and sharing and science to deliver a zero particularly given the widespread this data is difficult because carbon future”37 by developing deployment of Internet of Things lack of commonly accepted standards-based marketplaces technologies; one question is standards and assurance for environmental & financial data. how to get people’s consent and mechanisms means it is difficult build trust. The Centre for Digital to compare like with like, and Built Britain has published its pricing mechanisms are not yet Gemini Principles34, which provide mature. Individual organisations high-level guidance. While these are deriving great value from Although it is principles are welcome, further analytics and the ability to widely posited debate about data ownership create efficiencies and even and privacy is required if we are new offerings based on data, “ that ‘data is the to see a consensus in this area. but the idea of data as a raw new oil’, unlike This could be a key risk for so- material which can be bought called smart city developments: or sold (like ‘oil’) is not yet here. oil, data currently one of the reasons for Alphabet- Finding new ways to collaborate really only has backed Sidewalk Labs’ troubles in that allows for sharing and value Toronto has been its approach to exchange will be key to opening value in the privacy and data management.35 up business models around data business silos where it was generated
Pictured below 1 Grand Canal Square, Dublin 2
34 https://www.cdbb.cam.ac.uk/Resources/ResoucePublications/TheGeminiPrinciples.pdf 35 https://www.ft.com/content/9cd15bcc-fbff-11e9-a354-36acbbb0d9b6 36 http://www.economist.com/news/briefing/21721634-how-it-shaping-up-data-giving-rise-new-economy 37 https://icebreakerone.org/ 30 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR CITIES Legacy systems and With legacy systems, operators to buy the data in from external proprietary solutions and maintenance teams are sources – ideally they’d be in provided with very limited and the building and aware of each 38 Another major hurdle which poorly served data on building other.” inhibits the progress of digital performance. As a result, it is These manual systems are no real estate is the fact that most difficult for these buildings to longer feasible sources from industry stakeholders rely on support the new demands for which to draw sufficient insights legacy systems with siloed data and services. or fully take advantage of what data sets. As many real estate The vast majority of buildings a building might be able to say companies have their business in the market are relying on with data. This data will become logic deeply rooted in proprietary traditional building data from the increasingly more important legacy systems, it is hard to building management system in determining the valuation of migrate and modernise these (BMS), metering data, and even portfolios. This is due to the rise systems without major losses paper bills for reporting. As in prominence of sustainability to normal business operations. one technology leader for a as a key feature of real estate There is a growing drive to extract large pension fund says: “We business models and operating more granular asset data on have looked at energy usage strategies. how a building is performing for by combining data from energy reporting on various benchmarks, sensors, energy demand and such as GRESB. This is far from energy billing, but we had to do being widespread, however. our own data integration, and had
Computer generated image of IPUT’s new office development, Tropical Fruit Warehouse, Sir John Rogerson’s Quay, Dublin 2 31 Section 3 – Barriers to Uptake
Technology leadership This requires an understanding Risk of potential value, how the Technology leadership in construction project can Taking these considerations landlord organisations has accommodate technology together, it would seem that traditionally focussed on the to minimise risk, how to smart buildings have in the past enterprise operations. Now with manage complex stakeholder presented too much of a risk to increasing digitisation of the built relationships where tenant developers and landlords. The environment, new responsibilities systems need to connect to design of smart buildings can and skills will be needed. landlord systems (e.g. how to present developers with too Currently there is often an overall connect the building’s security many uncertainties requiring lack of strategic overview in system to each tenant’s user early decisions for properties terms of how digital technology ID and meeting management that may only see the light of can enhance services within real systems). day years later. estate, and who is responsible for its implementation. The challenge New partnerships will be There is often uncertainty about is moving these new technologies needed between facilities cost and return on investment, beyond flagship projects and into management and the IT function as the success of digital the mainstream. as their respective domains interventions can depend on – the operational building detailed functionality and the systems producing data and the nature of the organization using converged networks on which them. This makes it hard to run a they run – merge. Furthermore, rigorous return on investment on building user experiences these initiatives. based on services using digital technology in the building will Furthermore, the developer may need new models of leadership not know who the tenant will be and management. at the time design decisions need to be made.
• It may not be clear who will be responsible for the final technology implemented. • Facilities Management teams may not be equipped to run very digitally enabled properties. • There will also be ongoing We have looked risks in terms of cybersecurity at energy usage and resilience which require “ by combining specialist input. The next chapter will examine data from energy how developments in business sensors, energy models, technology and demand and energy governance are starting to address these barriers and risks. billing, but we had to do our own data integration, and had to buy the data in from external sources – ideally they’d be in the building and aware of each other
38 Arup interview. 32 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR SECTION 4 CITIES What Does This Mean for Real Estate?
KEY TAKEAWAYS • As tenants demand more fl exible space and • New approaches to creating smart buildings support from landlords to deliver new services and the growing number of real estate technology and investors require more data, new business leaders, will create more opportunities models will emerge, supported by user to successfully deploy digital solutions experience design. to address tenant and investor needs.
Pictured opposite Caption to go here 33 Section 4 – What Does This Mean for Real Estate?
Will digital technology in buildings be as transformational as the elevator was for the skyscraper or the car has been for cities? We have yet to find out. But more nascent technologies, such as digital twins that can operate buildings automatically, or even the frictionless use of digital collaboration tools, combined with a sustainability-driven clampdown on business travel, could contribute to new building typologies and new types of urbanism.
In the meantime, digital technology needs to be aligned to what current landlords, tenants and investors want from their buildings. This chapter presents some suggestions for how to approach that requirement.
New business models When setting a vision and aligned with user aspirations for a building, experience an understanding of current behaviours and technologies The business model for can highlight key trends and user commercial real estate is likely to expectations. change in ways that will demand During the early design stages, a more strategic view of user experience design can inform experience and a more strategic key spatial decisions and view of digital technology: challenge designs to incorporate • Tenants are starting to require new behaviours (e.g. space more landlord support to for delivery lockers; electric deliver user experience and scooter charging points). User extract data journey development should involve all disciplines in order • New demands for flexible to collaboratively translate the space provision will require building vision into tangible more focus on data and experiences. As the design experience of the building progresses, • New roles for asset managers service blueprints or designs as curators of services, can identify requirements for requiring more data on tenants tender specifications (both and on the performance of for technology and for non- their assets. technology products and services), operational plans, This will require a strategic view tenant pitches, for ensuring of user experience, with new performance during testing roles such as Chief Experience and operation. Officers and changing role of asset managers to be curators of There is not yet a standard services for tenants, managing approach for how to pay for these ecosystem of partners. Landlords initiatives. In some markets this will need to work with operators will be part of differentiating such as JLL, Knotel, CBRE but the building and attracting not lose sight of their ultimate certain classes of tenants. Some customers. They will need technology will be required to to work out how to get data support changing business and understanding of them. models (e.g. operating flexible Using experience design in space). Some tenant services the early stages of design will may be operated as pay per use, inform key spatial decisions by or be part of the service charge. understanding the current and Some technology solutions future needs of a building’s users. may allow for cost savings, e.g. having a better understanding of space usage may allow for estate rationalisation. It will be important to align services and the supporting technology to Pictured left the overall development strategy Computer generated image and develop business cases for of Wilton Park, Dublin 2 specific buildings. 34 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
SHAPING OUR CITIES New approaches Future models of managing to technology buildings and facilities will use machine learning and AI to Demand for smart buildings sense and respond to occupant is growing: 30% of occupiers needs and environmental surveyed in CBRE’s EMEA changes. These advanced Occupier survey see smart models will rely on large volumes building technology as a factor of historical, non-dispersed in choosing a building in 2019, and real-time data. up from 18% in 2018. Smart enablement for buildings The reasons for this are threefold: Smart enablement takes a • Tenants want simple data that different approach to a traditional they can use to drive decision- smart building integration making. project. Instead of tying systems • As the user experience together at construction stage, becomes more important, the building systems are enabled some experiences will depend in the base build and landlord on the building being able to areas so that the occupier can support particular functions. build their own applications later For example, a tenant might to extract data or support the wish to enable a better user experiences they want. meeting room experience, While all organisations may with automated access share some basic experiential to collaboration tools and requirements (e.g. in-building optimisation of air quality and wayfinding) different segments of flow, enhanced by wayfinding organisations may have different based on participants’ needs for different types of data proximity to the room. and elements of services – it is important to know which one the • Landlords increasingly need developer is aiming for. more and better asset data for reporting, maintenance Taking the approach of smart and operations purposes. enablement can facilitate many In the past, smart or ‘intelligent’ of the benefits of a smart buildings were driven by the building, without having to put in BMS. But siloed systems, place costly features immediately, proprietary protocols and lack which could become redundant of interoperability restricted or not suit the ultimate tenant’s buildings’ ability to support requirements. operational efficiencies or occupant experience. The lengthy replacement cycles (20 years) also meant that it was not cost-effective to upgrade or replace the BMS with newer Future models equipment. IoT technologies have of managing the potential to upgrade existing systems by extending and “ buildings and augmenting existing equipment, facilities will e.g. by placing sensors on boilers, chillers and other hardware use machine in order to enable real-time learning and monitoring of legacy equipment. AI to sense Wireless connectivity can reduce the cost of this installation, and respond demonstrating the potential to occupant importance of 5G in buildings. needs and environmental changes 35 Section 4 – What Does This Mean for Real Estate?
The Exchange, IFSC, Dublin 1 36 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
5 Earlsfort Terrace, Dublin 2
The key tasks are to: • Implement a converged seamless and streamlined network in the building with connections able to be • Understand who the established with minimal An Integrated Communications potential customers are additional cabling and network Network (ICN), also referred infrastructure Using experience design to as a “converged network”, techniques, identify potential is a common Ethernet • Use internet standards and user experiences to help communications network IoT gateways across systems define the scope. that can be utilised by all, or a select set of building related This allows for applications • Establish consistent systems, such as: security, to be built later, when the device and data naming lighting, heating, ventilation, occupier is in place and Making sure that all devices and air conditioning (traditional knows what they need. Using and systems can be uniquely BMCS), energy and water open Internet standards identified is key to being metering, fire alarm, motorized moves away from traditional able to extract data later blinds, base building Wi-Fi. proprietary interfaces and or automate those devices The intent of the ICN is to makes it easier for software to produce particular replace all of the individual engineers to engage with experiences. A naming bespoke networks that were building automation. scheme is agreed at design traditionally installed in a stage for all design engineers building into a single network. to follow. An ICN means that connection of future systems is relatively 37 Section 4 – What Does This Mean for Real Estate?
Design and procurement physical requirements tend to be aligned to the traditional Successful delivery of either a construction delivery process smart building or a smart enabled of specialist contractors who are building relies on a mix of diverse responsible for the installation skills, roles and responsibilities of the client’s IT infrastructure – managing the process can and building services control be complicated and difficult systems. Early engagement of which will ultimately rely on the a specialist contractor, working scope of services including collaboratively with the project team responsibilities and risk team, is key to the successful levels being clearly understood delivery of a smart enabled and procured correctly at the building. Applications and user outset. A specialist consultant interfaces can be procured will work with the project team later outside the construction across the design stages to help contract.39 identify and prioritise proposed user experiences, define the A key benefit of delaying scope of systems and the naming application procurement is scheme for devices. Technical that some business cases and specifications for individual contracts can be identified and building systems may be let after practical completion of augmented with clauses relating the physical building, when there to data and security requirements is greater knowledge about the for the network. tenants and their business. This addresses some of the key risks Procuring the infrastructure associated with implementing and integration requirements digital technology – value can be for a smart building is relatively apportioned and cost and ROI straightforward because the will be easier to estimate.
Successful delivery of “ either a smart building or a smart enabled building relies on a mix of diverse skills, roles and responsibilities
39 James Wanless et al., 31 May 2019, “Smart buildings – the case for smart enablement,” Building. 38 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
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Pictured above Original timber beams at Tropical Fruit Warehouse, Sir John Rogerson’s Quay, Dublin 2
Approaches to retrofitting Then there may be several ways a consistent naming scheme of delivering those requirements. to uniquely identify individual New buildings are a relatively pieces of equipment in the small percentage of the overall • The first thing is to understand building, and a converged building stock – the annual the capabilities of current network to connect them replacement rate of buildings building systems and explore all. This can involve a lot of (the percent of the total building whether they could be manual work to implement the stock newly constructed or commissioned differently change but then could allow majorly renovated each year) has to enable the requirements. for monitoring and control of historically been about 2% in the specific pieces of equipment 40 • Depending on what needs US and 1% in Europe. Most of to be measured, there may such as chillers or pumps the buildings around today will be lightweight sensors which across the portfolio. still be in use in 2050. So many could collect particular types of these buildings will need to be Technology is developing all the of data (e.g. fine-grained air retrofitted in some way to provide time to address particular needs quality data), uploaded to more granular data and support and niches. The key success cloud storage through 5G new user experiences. factor for implementation is being or Wi-Fi. clear about the expected value Retrofitting can be a complex • More comprehensive and putting in place roles and process. The most important requirements such as responsibilities to manage the consideration is understanding extracting granular data from design and deployment. what the requirements are and legacy building management why – what data is needed, what systems (BMS) may be experiences or services need to delivered through a smart be provided. enablement approach, using
40 https://www.usgbc.org/articles/existing-buildings-99 39 Section 4 – What Does This Mean for Real Estate?
New leadership roles A big change for developers is access to data and customer in asset management. Now that insights is a powerful competitive Some leading organisations tenants are asking for more – advantage, and companies such such as Lend Lease, Boston shorter leases, as well as more as JLL and CBRE are also looking Properties and Hudson flexibility, services, technology to capitalise on their expertise Yards have put senior digital and sustainability – it is more through competing co-working leadership in place to identify challenging to maximise assets services such as CBRE’s Hana.41 and implement where technology to provide a good return on Furthermore, decentralising the can better support or disrupt investment. The role of the asset operations and management of a the business. At an industry manager will change to be more building can make it challenging level, more digital governance data driven; using customer to enable all of the systems and is needed, at an organisational oriented data will be vital to behaviour changes needed level with new roles, such as future decision making. Taking a to adopt more sustainable, Chief Technology Officer and data-driven approach can also climate-conscious practices. The even Chief Experience Officers help manage costs and cut down trade-off between maintaining a and new collaborations, such as on expenses that are not directly slim organisation (but potentially between Facilities Management delivering a good return on losing a competitive edge) and and Information Technology. investment, improving customer expanding into a customer- These roles should support new experience, or delivering on facing service organisation business models, understanding social value and sustainability. must be carefully considered. customer needs to support Data, when paired with capable Even if landlords do not operate the design of new experiences analytics and leadership, every aspect of the business and services. They should take help align an organisation’s themselves, they will want to on new approaches to data investments with its goals. be the curators of the right mix management – for reporting of processes and services, and and to support the development Where previously many landlords bring these together in a holistic of other roles such as asset relied on outsourcing operations way for tenants. Once again, management. to JLL or CBRE, or to a host of FM having access to data analytics managers and other services, this across different aspects of the increasingly presents a risk, as business is vital in shaping the it creates a disconnect between right partnerships. the landlord and the ultimate customer. In a service economy,
The role of the asset “ manager will change to be more data driven; using customer oriented data will be vital to future decision making
Pictured right Riverside 1, Dublin 2
41 https://www.cbre.com/real-estate-services/directory/flexible-space-solutions 40 IPUT REAL ESTATE DUBLIN | ARUP How Digital Technology is Disrupting Global Real Estate
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