Smart Technology in Commercial Real Estate

Pillsbury - Gravel2Gavel Construction & Real Estate Law

“Hey Siri…” “Alexa…” “Okay Google…” These are just some of the buzzwords and phrases that have entered day-to-day vocabulary as a result of the explosion of smart technology. Internet of Things (IoT) devices are in our cars, in our workplaces and on our bodies. But nowhere is smart technology more prevalent than in our homes. The array of services that are available coupled with the growing number of companies and service providers eager to innovate, should only grow this technology’s market share in the coming years.

In the United States, at least a third of households live in rented units, and among those under 30 years old, that number is almost 50 percent. Smart home technology is important to this younger set of renters, as one research firm determined that millennials would be willing to pay 20 percent more per month for units that contain such technology.

Property developers, owners and managers need to take notice. There are not only significant benefits to deploying this technology in buildings, but also important considerations to work through. Crafting a comprehensive smart technology plan at the outset will help businesses reap the rewards while evading potential pitfalls.

Benefits of IoT on the Homefront

Sharpening those Selling Points: When the big-ticket items like square footage, price and location are relatively equal, it is the smaller perks that help consumers make a decision. Technology that makes using the space easier is a strong selling point. Automated locks, smart security systems, smart speakers, programmable thermostats and other gadgets make the day-to-day existence in the space that much more seamless. Thoughtful deployment of these technologies signals to a consumer that the landlord is considering the needs of tenants and is committed to continued innovation.

Reducing Costs of Property Management: The benefits of smart technology do not just flow to the end users. Tired of tenants leaving lights on in common areas? Smart lighting can make up for the forgetfulness and cut down on unnecessary electricity use. Concerned the HVAC system is overcooling some areas, undercooling others? Consider an upgrade to a smart HVAC system for long-term savings. And there are more savings to be had once data analytics are leveraged. Smart technology’s collection of usage information at a property can help recognize trends and adjust resource deployment accordingly.

Providing Pandemic-Proofing Assistance: While the investments made in smart technology will be useful in a post-COVID-19 world, they may also bring peace of mind as the pandemic rages. Automating high-touch surfaces (thermostat dials, ingress and egress points) and lessening the need for close proximity interactions between staff and tenants will enhance health and safety measures. The wellbeing of all building occupants can be aided by the use of these smart technologies.

Considerations for Strategic Deployment of IoT

Knowing the Needs: The evaluation period is critical. Outfitting an entire building is a significant investment, and different technology options need to be considered. Major brands have crafted competing offerings—how does a property evaluate these solutions? Can a particular solution be requested as a trial? Property developers and managers should not underestimate the value of the RFP process and making the vendors compete for business. As part of this evaluation, consider the budget for the project and the technical specifications that are most important to the smart technology strategy (e.g., how many users can be linked to one account, what security protections are in place, what is the device’s range, etc.). The latticework of criteria may be different building to building or even for different use cases across floors of the same building. It is not enough to say the property uses smart technology; it needs to be the kind of smart the space needs. Otherwise, it is just a gimmick that consumers will see through.

Smarter Contracting through Leverage: As an enterprise level customer, a commercial real estate business may be able to leverage its buying power into more favorable contractual terms. This could include the vendor committing to better service levels (keeping it accountable for the technology’s performance), lower prices given the bulk purchase, and stronger indemnification provisions and warranties (protecting the business in the event of vendor error). This is not an exhaustive list, and the bigger the purchase, the more leverage there is.

Keeping Privacy Concerns at the Forefront: There are a host of privacy considerations that come with deploying smart technology, both from a regulatory and consumer relationship perspective. The threshold question is, how much data will the development or property management company be accessing?

On the consumer side, how is the technology described to tenants? Of course, the technology’s perks are a selling point, but how is access to the data addressed? Perhaps consumers will not care that their preferred temperature range is known. But what about a security camera’s footage? Consider consumer comfort and craft data retention policies and guidelines for how employees access this data. Crucially, one must craft a security policy that provides robust protections for any data that is stored.

On the regulatory side, what laws and regulations might influence the deployment of the smart technology? Are there laws about data retention or collection of biometric information? Analysis must be done for every building and every technology for every jurisdiction. What is okay in New York for commercial tenants might not be acceptable in a California apartment building. Do not expect the compliance framework to remain static—in the past year alone there has been increased legislative activity, and that trend will continue. Companies need to be aware of limitations at the outset (and monitor changes in the regulatory landscape) so they can design an effective and legal smart technology strategy.

No matter the perceived benefits or concerns, property owners can be certain of one thing: the average “IoT IQ” of residential and commercial properties will continue to rise, as will the baseline expectations of consumers living and working in those spaces. Even as compliance frameworks mature and privacy concerns are identified and defused, technology, inevitably, will stay at least a few years ahead. In future posts, we will delve more deeply into what this means for property owners trying to fully benefit from smarter homes while keeping an eye out for the next technological wrinkle likely to arrive at the doorstep.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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