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Smart Buildings: What 'smart' really means

It's time for proper certification in the real estate industry for "smart" tech - which is vulnerable to hacking and cyber breaches - so that steps can be taken to mitigate risks.

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Stakeholders should be involved in defining the criteria that make a building smart, not just vendors with a vested commercial interest. Sound smart building certifications will be an important component of a functioning market for smart real estate.

REAL ESTATE, a mostly passive spectator of technological changes for years, is being disrupted at last under the unrelenting pressure of smart technologies applied to all aspects of the built environment (construction, valuation, transaction, operation, management).

Disruption in real estate comes from two concomitant changes. Firstly, the property sector itself has moved at the epicentre of a technology revolution with the emergence of property technology (proptech), a broad term covering the wide range of applications of digital technology to the property sector. Secondly, digital innovations are revolutionising the way urban environments and buildings function and interact, enabling new lifestyles favoured by millennials (such as co-working) and giving rise to a new type of building called "smart buildings".

Smart buildings are essential components of any smart city project. They are an instrumental part of smart energy grids and serve as real-time adaptive platforms collecting data to feed increasingly sophisticated analytics. In the process, they foster productivity, efficiency and overall well-being of their occupants. There is however one problem which needs to be urgently addressed if we want the promises of the digital revolution to fully materialise in the built environment: smart buildings still lack common standards and metrics to quantify their value and contribution to urban environments' overall smartness.

NEED FOR SMART BUILDING METRICS AND CERTIFICATION

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Similar to green buildings' widely used LEED (Leadership in Energy and Environmental Design) certification, smart buildings have to come with ad hoc norms and standards to certify their performances and guide commercial real estate players. Attempts to design evaluation frameworks and smartness scores have so far been hindered by the lack of consensus among multiple and diverse stakeholders (private sector, public authorities, technology companies, real estate sector).

Faced with the need to accompany their clients' digital transformation and incidentally to generate business, corporations have been the first to develop their own set of metrics. The most well-known corporate indicator of building smartness might be the Honeywell Smart Building Score (HSBS) compiled by Fortune 100 American conglomerate Honeywell (NYSE-HON). The HSBS is a universal framework which can be used as a self-assessing scoring tool by the company's existing and potential clients globally.

The HSBS covers three characteristics: greenness (environmental sustainability); safety (security of the building, its occupants, users and owners); and productivity (through comfort and productivity enhancement for users and owners). These characteristics are captured by "active components" (such as devices, software, analytics) on which Honeywell explains it can add-value. So-called "passive components" - that is, architectural design, building location and building materials - are overlooked.

Hence, the HSBS seems to be best suited for property owners looking to smart up their properties by using Honeywell's solutions rather than those aiming for a holistic view of what a building should include in order to qualify as smart. Noticeably, scoring methodologies defined by corporations tend to be biased towards their sponsors' product and service offerings.

PUBLIC VERSUS PRIVATE INDICES OF SMART BUILDINGS

The alternatives to corporate indices of smart buildings are public indices developed by industry organisations, academics and/or governments. These indices are usually closer to certifications than scores. As many countries have adopted different key performance indicators (KPIs) for smart buildings, public indicators of smart buildings embody deeply rooted and diverging interpretations of smart buildings' essence and contributions to smart urban environments across the globe.

While Europe's Smart Readiness Index (SRI) promoted by the European Commission Directorate-General for Energy is geared towards sustainability, the US (with the Building Intelligence Quotient or BiQ) emphasises the performance and cost effectiveness of smart buildings.

By the same token, Asian countries have adopted a wide range of indicators with very different KPIs. In South Korea, one of the global leaders in smart technologies, intelligent building indices focus on smart features only, as sustainability is assessed by a separate certification initiated beforehand by the government. In Japan, the focus is on services derived from smart features whereas China emphasises system aspects.

Interestingly, Asia has been at the forefront of smart building index development. The first index of building intelligence ever published - the Intelligent Building index (IBI) - was introduced by the Asian Institute of Intelligent Buildings in Hong Kong in 2005.

Irrespective of their KPIs, most existing scores encapsulate an engineering view of smart buildings. Such a view defines smart buildings as highly sophisticated, self-contained "machines", by emphasising their technology rather than their interactive dimension. Despite covering a wide array of elements, these public indices overwhelmingly ignore a building's ability to interact with its smart urban environment, which is a source of both efficiencies instrumental to a smart city's success (eg, buildings as prosumers in smart energy grids) and risks (eg data breach on connected ICT networks).

Hence, in their current versions, both private and public indicators of smart buildings fail to capture the complex and growing role that buildings will play in smart cities - as data collectors and connected platforms which turn buildings into "ibuildings".

THE IMPORTANCE OF CYBER-RISKS IN ASSESSING SMART BUILDINGS

One important dimension of smartness for all stakeholders should be cyber-risks posed by technologies embedded in smart buildings. The issue of cyber-risk concerns not only buildings' occupants (with potentially catastrophic scenarios worthy of horror movies), but also corporations operating in this kind of space.

One should not forget that real estate has been targeted in numerous breaches of cybersecurity in recent years. In a note entitled Cybersecurity - Securing real estate assets in a digital age (January 2019), ANREV reminds us that in 2013, hackers gained access to up to 40 million debit and credit card records of American retail giant Target (NYSE-TGT)'s shoppers through information stolen from the company's heat, ventilation and air-conditioning operator. In 2017, Target reported that the total financial cost of the hack amounted to US$202 million.

As IoTs, sensors and ever more potent cyber physical systems multiply in the very fabrics of our future cities and buildings, the scope and intensity of cyber-risks stemming from smart building technologies can be expected to increase exponentially in the future. Such threats should be clearly identified, assessed and known to potential users and owners of smart buildings. Fire and security systems are clearly not enough anymore.

To achieve that, all stakeholders should be involved in defining the criteria that make a building smart, not just vendors with a vested commercial interest. Sound smart building certifications will be an important component of a functioning market for smart real estate. This is a necessary step towards promoting investments in this new segment of the commercial property market, and more fundamentally fostering public confidence in smart cities.

  • The writer is Associate Professor in Real Estate at Henley Business School, University of Reading (Malaysia).