Financing smart buildings

Why buildings in the 'new normal' have to be smart – and how to finance them.

Smart buildings add value by delivering the agility and flexibility building owners and managers are seeking in the ‘new normal’. In a budget constrained environment, energy efficiency savings are increasingly seen as the ideal starting point for smart buildings transformation. A new Whitepaper from Siemens Financial Services (SFS) explains how to make it happen in a financially sustainable way.

There is a ‘perfect storm’ of factors which are simultaneously driving change and make buildings ‘smart’. COVID-19 has introduced new rules and ways of working to ensure hygiene, infection control and safety in buildings. This has led to economic pressure to achieve building management cost efficiencies, especially through energy efficiency. Alongside these topical pressures are existing and emerging regulatory requirements that make fire and security upgrades mandatory. As well as policies around the world that are setting targets to reach higher environmental standards in buildings.

 

A new Whitepaper from Siemens Financial Services (SFS) therefore argues that the smart thing to do is to make buildings smart. If a building is not smart, it is far less likely to be let or used or retained, fundamentally affecting property asset values.

Smart finanancing for smart buildings

Whitepaper: "Financing smart buildings: driving value in the new normal"

Interested in learning how smart finance can help you realize smart buildings transformation? Download the whitepaper and opt-in for future insights direct to your inbox. Delivered monthly, these insights provide detailed overviews of the different aspects to conversion and the value of energy efficiency savings.

Smart building technologies that help manage the 'new normal'

Smart buildings deploy automated and digitalized technology to enable more efficient, more effective building capabilities and management. The data generated by IoT sensors provide real-time information for quick reactions. Smart technology helps transform the building from a cost burden to an active contributing partner – a new team member – in running a business or a public sector organization and coping with the ‘new normal’.

 

With smart technologies, buildings are managing workflow and occupancy, ensuring employee safety, recognizing and adapting to each occupant’s individual requirements or preferences, conserving energy, and a host of other intelligent and agile business support functions. Examples – a ‘new normal’ in smart buildings – include:

  • Fire and security protection
  • Distanced temperature sensing
  • Touchless controls for hygiene and infection control
  • Touchless security and access permissions
  • Remote, digital occupancy management
  • Digitally enabled smart HVAC
  • Personalized workspace
  • Cleaning and sanitation routines

Yet in the post-pandemic world, business and public sector finances will continue to be under considerable strain for an extended period; at the same time, building owners and managers are having to invest in measures to make their buildings safe and occupiable, and are also being restricted on the density of occupation at any one time. 

A smart, higher-performing building can conservatively add as much as 11.8% in lease value and can ultimately yield 5% to 35% higher sale values.

Return on investment from smart buildings

The added value offered by smart buildings has already been widely acknowledged amongst expert commentators. According to the European Commission report on Macroeconomic and Other Benefits of Energy Efficiency, a smart, higher-performing building can conservatively add as much as 11.8% in lease value and can ultimately yield 5% to 35% higher sale values.

 

How can building upgrade and conversion be financially sustainable? The starting point is to use smart technology to reduce buildings energy consumption. This produces hard financial savings that – through smart financing arrangements – can be used to subsidize or even pay for overall smart buildings conversion, as the Whitepaper from Siemens Financial Services suggests.

 

Smart financing techniques to enable energy efficiency conversion and smart implementation split into two main camps:

 

  1. Building-Efficiency-as-a-Service – this is designed for whole and multi-building projects.  You introduce technology and systems to create smart buildings which deliver a clearly predictable level of energy savings. Our intelligent finance uses these savings against monthly payments to effectively fund the cost of conversion. The best part?  Throughout, the building’s owner has had to put no capital at risk, and has conserved funds for other strategically important development activities.

  2. Financing Products and Projects – this is designed for smaller incremental steps to conversion. While customers cannot reap the same significant benefits as option 1, there is a huge operating advantage in being able to spread conversion costs over a financing period – managing cash flow by aligning expenditure with the rate of energy savings.

Energy efficiency – the investment challenge

Data from the Global Alliance for Buildings and Construction (GABC) indicates that the world must increase renovation rates to an average of 3% of existing stock per year by 2040 in order to meet climate action targets.

 

To help customers assess the size of the challenge, the latest Insight Series from SFS estimates the capital cost of conversion over this period (2020-2040) in fourteen countries – and across five sectors: offices; hospitals; manufacturing; public buildings; and education.

 

For each sector and country, the costs are significant and it is clear that only smart finance solutions from specialist financiers can help customers meet these targets.

October 19, 2020

Author: Fraser McGregor
Picture credits: Siemens AG

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