Understanding the Definition of Smart Buildings

The methods we use to measure smart building performance are still immature and fragmented, writes Joseph Aamidor.

Like any solution sale, smart building vendors typically create detailed business cases to convince building owners and operators to make a purchase. In the past, these business cases were based primarily on energy savings. Over the past few years, there has been some push to quantify other bottom-line savings opportunities, such as reduced maintenance costs and avoided equipment replacement.


At the same time, some research shows that green buildings (which share some features with smart buildings) drive top-line benefits such as higher rents and property value. In general, the top-line benefits are more compelling to an enterprise, but they may be less understood or “believable,” given that the hard data is research-based and may not be as tangible to individual building owners.

Energy Star and other sustainability protocols like the Global Real Estate Sustainability Benchmarks (GRESB) provide some standardization for green building performance, which is part of the smart building value proposition. These standards may help make some of these top-line benefits more compelling. But the energy savings is likely to be just a fraction of the total value of smart building technologies. A smart building business case based solely on energy savings will leave money on the table.

In fact, there are many ways that smart building technology can add value to buildings, and even more ways to measure this value. But just as the market for the solutions is fragmented and opaque, so are the metrics to understand the value proposition of these technologies. Some vendors attempt to define their own smart building metrics. In addition to being self-serving, this just adds to the confusion.

The standard financial metrics used in real estate may indirectly help to quantify smart building technologies. However, metrics such as rents, asset value, and occupancy rate (and the changes to these metrics after smart building technologies have been installed) are likely to be indirect and lagging. Additionally, factors like location have a significant impact on real estate financial metrics.

Comparing the value of smart building technologies in New York vs. Nashville will be difficult, since the property values themselves are so divergent. Additionally, each city has different key industries, and some of these industries may value smart building technologies more than others. For example, high tech corporations on the West Coast may place more value on smart building technologies.

In addition, depending on the type of building, there are going to be different metrics that matter. For example, a marquee office building downtown may use smart building technologies for competitive differentiation, or an anchor tenant may request specific features. Smaller buildings, such as restaurants and retail spaces, may look at the operational efficiencies that are enabled with modern building operations technology.

Two things are needed. First, we need research on the value of smart building technologies, much like the research on green buildings. Second, the development of standards on what technologies are considered smart would add clarity to the market and help buyers procure technologies without as much friction. But these developments are years away. Until that time, here is some guidance on the four categories of metrics that should be considered by building owners and operators.

Alternatively, building owners must dedicate their own staff time to address the operational issues that are identified by the smart building solutions. Today, the relevant operational metrics focus on facility and energy costs per square foot, the number of work orders, and the average time to close them. In the future, predictive analytics may help avoid issues entirely (a metric such as “avoided work orders” may become relevant). Today, facility managers considering smart building technology should understand which metrics each vendor uses to build its business case and compare them to the metrics that the organization itself tracks.

Specifically, building owners should consider the bottom-line improvements based on operational efficiency and the top-line benefits from occupant-centric features and capabilities. This will help establish a more robust business case for smart building investments. Smart Building Metrics: Measuring the Opaque, Misunderstood and Poorly Defined | Greentech Media