3 Trends Reshaping Building Operations as We Know it
Operators are retiring, data is becoming ubiquitous, and the real estate companies that have adopted tech are beginning to separate themselves from their competitors. Every industry faces mega trends that affect every level of the business, the question is: can companies adapt to changing times?
Hi everyone, I’m Comly Wilson and welcome to another edition of Enertiv’s real estate technology whiteboard.
Today, we’re going to talk about three trends reshaping building operations as we know it. These are mega trends that are happening whether or not we want them to. The real question is: are we going to adapt?
So, the first one. Field expertise is retiring. 72% of building operators are over the age of 45 and something like 30% are over the age of 55. These operators are going to be retiring soon, taking with them all their institutional and technical knowledge.
And unfortunately, there is not the labor stock to replace them; twice as many high school graduates are going to universities as opposed to technical schools, trades school, or jumping straight into the workforce.
The effect of this are already being felt; 62% of firms say they struggle to fill technical positions. This is a real challenge that I’m sure many of you can relate with, but fortunately there are other mega trends that are enabling real estate companies to do more with less.
One of those is data collection. Data is getting better, it’s getting easier to capture, and it’s getting less expensive to implement. Case in point, the cost per sensor has fallen 70% in the last decade.
In addition to that, the cost for the infrastructure necessary to get that sensor data out of the building is falling as well. With new protocols, sensors can transmit their data four times as long as previously possible. That means less data loggers, less hubs, less of the ancillary equipment necessary in an IoT deployment.
And this is showing off, IoT deployments are increasing 79% year over year. That shows that this data is producing value, but it also exemplifies something we talked about in our last video, which is this idea of a data lake.
The idea is that the more data is captured, the more valuable each new data point becomes. That’s where this better data comes into play.
And the last trend I want to talk about is the business case. Obviously real estate is a competitive industry, for those who can find returns from new sources will be in a much better position financially and therefore competitively.
With this data, it’s possible to achieve a 10% reduction in overall operating expenses. That’s not just the energy line item, that’s total operating expenses (minus taxes). That’s a significant number. Say you’re spending $10 per square foot on operating expenses and have a 6% cap rate, that’s $8 per square foot of added asset value.
Not only that, but reducing operating expenses also means longer equipment useful lifetime. When your equipment lasts longer, that means you have to put away less money per year for CapEx reserves. So, in addition to this 10% reduction in operating expenses, there’s a potential to decrease the annual reserves necessary for capital expenditures by 15% as well, which is more money into the pocket of landlords.
Finally, and this is a topic that needs much more research, but one report out of San Diego found that buildings that are high performing have a 4% higher occupancy rate than those that have elevator shutdowns or hot water issues. At the portfolio scale, a 4% higher occupancy rate really moves the needle.
The business case is becoming undeniable to adopt data even when you have less people to run the buildings effectively.
So, those are three big trends. There are obviously some challenges, the question is: how do we adapt? I hope that was helpful and have a great day.
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