What is a smart building?

A smart building is one which uses technology to optimise performance, enhance the comfort and wellbeing of occupants, and reduce environmental impact. The incorporated systems are designed to monitor and control various building functions, such as lighting, heating, ventilation, air conditioning, security and energy consumption, reducing human intervention and error.

To be considered “smart” a building needs to have advanced technologies and systems that optimise operations. These include:

• Sensors and IoT devices Sensors, gateways and other IoT devices collect data on temperature, humidity, air quality and energy. These are typically connected to a network that allows the building’s management systems to analyse the data and make real-time adjustments.

• Building management systems Smart buildings use progressive building management systems to control and monitor building functions. These systems use data, often collected by sensors, to optimise the building’s performance and enhance occupant experience.

• Energy management systems Smart buildings use energy management systems to monitor and control a building’s energy consumption. They automatically adjust heating, cooling, lighting and other systems to cut energy use yet maintain occupant comfort.

• Cloud-based analytics and AI Cloud-based analytics platforms are often used by smart buildings to analyse the data collected. These use machine learning and other advanced techniques to identify patterns and trends, while making predictions about future performance.

• Integrations to remove data silos No two buildings are the same. It is important to augment the existing/legacy systems to sweat the assets and ensure data silos are removed and augmented with new technology. This could include combining booking data from reservation systems with accurate occupancy data.

Why should building owners care?

Smart buildings offer benefits, including improved energy efficiency and enhanced occupant experience, and are expected to become the norm in new construction projects and retrofits. Advantages include:

• Cost savings Smart and energy-efficient buildings are designed to minimise energy use and operating costs. Using data analytics, landlords can make informed data-driven decisions, resulting in lower utility bills, less maintenance and longer lifetimes.

• Post-Covid hybrid working Smart buildings can ensure employees have a safe and comfortable working environment when in the office. Sensor data can provide touchless access with features such as mobile apps, facial recognition and QR codes, minimising the risk of virus transmission.

• Global energy crisis Smart buildings can help address the current energy crisis through optimising lighting, heating and cooling. They can incorporate renewable energy sources, such as solar and wind. Demand response programmes can also reduce the need for additional fossil fuel-based power plants.

• Climate crisis The daily operations of buildings contribute 27% of global greenhouse gas emissions. The sector has a responsibility to reduce its carbon footprint. Smart buildings use sensors, incorporate green roofs and harvest rainwater to reduce wastage and carbon emissions.

• Occupant comfort and wellbeing Smart buildings can regulate room temperature and CO2, or reduce noise to ensure a more comfortable indoor environment.

• Regulatory compliance In many countries (including the UK), there are minimum energy standards and regulations that buildings must comply with. Investors, building owners, developers and tenants are increasingly looking for properties that offer lower costs, sustainability and improved occupier experience, while complying with regulations.

Old versus new buildings

Incorporating smart building technology at the start of construction optimises energy performance from the outset.

Smart technology can also be transformative to older, more outdated buildings. By retrofitting older, less efficient buildings, smart technology can significantly reduce carbon emissions and costs. There are also long-term economic benefits such as creating jobs in the construction, engineering and technology industries, boosting the local economy.

There are regulatory reasons too for adding smart technology to existing buildings. As most readers will be aware, since 2018 under the Energy Efficiency (Private Rented Property) Regulations 2015 (otherwise known as the MEES Regulations) it has been a requirement that non-domestic properties must have an EPC rating of at least E before a new tenancy of any part of the property can be granted.

From 1 April 2023 this has been extended, so that a landlord cannot continue to let a non-domestic property with a rating below E, unless it has a valid exemption or is out of scope of the legislation. The UK government is targeting a minimum B rating for all non-domestic rented buildings by 2030 and is proposing that there will be an interim milestone of a C rating by 2027.

Ahead of the April 2023 date many landlords were already upgrading their buildings to meet the EPC E standard, but it is anticipated that much more work will need to be done over the next seven years to meet the 2027 and 2030 targets.

There are some exemptions and limits on scope that offer a degree of relief for landlords, particularly in relation to heritage buildings or where all improvements that could be made have been made. There are also exemptions if a landlord cannot get consent, for example, from its tenant to do works, or if the cost of the improvements is not cost effective. To be valid, exemptions have to be registered on a publicly available register and renewed after five years.

If landlords fail to comply with the regulations, they are liable to fines, which increase in amount the longer the breach of regulations continues.

Sustainable Disclosure Requirements

Another regulatory change due soon that will affect many building owners is the introduction of the UK Sustainable Disclosure Requirements. The Financial Conduct Authority has been consulting on the proposals and is expected to publish its final rules in Q3 this year.

The UK regime will adopt a system of labelling for funds designed to ensure retail investors can have confidence in any products on offer and aims to tackle greenwashing. The system will have some of the same characteristics as the EU Sustainable Finance Disclosures Regulation, but will have a number of differences too, which will make it challenging for building owners to comply with both regimes.

One element of the SFDR is to distinguish between the sustainability goals that funds have. For example, the highest-level fund is one which is designated as Article 9. For a UK asset to qualify as one suitable for acquisition by an Article 9 fund, it must not be “energy inefficient”, which means having an EPC level of C or below (if built before December 2020) or a primary energy demand worse than the level of a nearly zero-energy building (if built after December 2020).

The UK looked to implement the requirements for NZEBs in February 2021 through building regulations, but they used criteria inconsistent with EU requirements, as they were based on target emission rates rather than primary energy demand. That was updated in December 2021, with new building regulations coming into force from June 2022 that are consistent, so buildings which meet the new building regulation standards should qualify as NZEBs. Owners will need to ensure that the right criteria are being applied to individual assets to meet the NZEB threshold.

Owners who do have to report on the environmental performance of their buildings, whether under the SFDR, the Task Force on Climate-related Financial Disclosures or any other requirement, struggle with one key element of reporting, and that is obtaining the necessary data about tenants’ energy use in their buildings.

More leases now require tenants to provide the data but many still do not, and even if there is a requirement to supply it, it may not be provided in a format or with the necessary detail to allow the landlord to report properly.

Smart buildings can provide a helpful solution to this, by enabling the collection of data at source through the building’s own systems. Appropriate consents need to be obtained from tenants to the collection and use of the data but, once given, the landlord will not need to keep asking its tenants for further information.

An earlier version of this article appeared in Estates Gazette.

*(managing director of Spica Technologies)