All project teams are being challenged by inflation but it would be a huge mistake to cancel innovations such as smart office technology, says Guy Windsor-Lewis
After a relatively mellow autumn, winter has now hit hard and despite the proximity of Christmas it’s hard not to be gloomy.
Amid predictions of a deep and long recession, rising energy bills, cost inflation and increase in borrowing costs, winter is going to be huge challenge for many businesses – and that’s putting it mildly.
Cost inflation is hitting construction particularly hard, with prices rising 25% this year - compounding supply chain pressures that had still to recover from the global coronavirus pandemic. That is enough to tip a project from profitability into a loss.
At times like these, it’s only natural for everyone to look for cost savings, and real estate is no exception. Office projects around the country, whether new-build or refurbishment, will be undergoing “value engineering” to ensure their continued viability. Many may well be shelved.
What could this cost-cutting mean for sustainability commitments and innovation? Experience tells us that ‘value engineering’ often leads to a reduction in quality of design as well as element that are considered ‘nice to have’, rather than ‘essential’. In the past that has often meant green measures have been binned – along with the smart technology and other innovations so critical to making a building more efficient.
The world of work has changed so dramatically in the past two that the office sector is almost unrecognisable from what it was the last time
But such an approach would be a serious mistake. Why? Because the world of work has changed so dramatically in the past two that the office sector is almost unrecognisable from what it was the last time that real estate went through hard times.
Take two key drivers in the office sector: sustainability and the ‘office as a service’ imperative. Occupiers are increasingly demanding green buildings aligned with their own sustainability commitments, as are investors, who want to be assured that assets are future-proofed against tightening regulatory frameworks (for example, the increase in minimum standards for EPCs), as well as the changing climate.
Brown buildings have no future, and a recession won’t change that. Indeed, in the context of rising energy costs, sustainable buildings only become even more attractive as energy-efficiency improvements mean lower bills. Any office project that cuts corners on sustainability now, is storing up big problems in the future – and that means the coming years, not some distant horizon.
>> Also read: 22 Bishopsgate: Looking down on the neighbours
Likewise, the ‘space as a service’ mantra that has taken hold in recent years (turbo-charged by the post-pandemic flex working revolution), now means that any office project that fails to provide the features and services occupiers now expect – such as smart building tech and other innovations – will struggle to compete.
This means that “savings” focused on cuts to green measures or smart tech will prove false economies, with medium to long-term value sacrificed at the altar of short-term cost-cutting.
The good news is that when it comes to the kind of innovation that is needed to meet occupiers’ expectations (and those of investors), the costs need not be high. In fact, when it comes to smart building technology, for example, the perception that it is an expensive add-on to a workspace is wrong. The reality is that the digitisation of the core management services of an office, which provide the most impactful benefits to landlords and occupiers – and work to drive the greater efficiency and sustainability of a building - are actually very affordable.
The misperception that ‘smart’ means ‘pricey’ exists because too often discourse around the digitisation of offices is narrowly focused on the best buildings in the best locations, which of course command the highest rent and service charges, which in turn support investment in cutting-edge tech.
That means the notion of a “smart building” project tends to be associated with gadgets in shiny new offices: from digital lockers to smart lifts to sensors that track air quality, energy consumption and movement around the building, making adjustments in real time. The perception is that smart tech is expensive and therefore only for only for ‘elite’ buildings.
But in truth, a smart building is is truly “smart” when it can manage the essential functions of an office: about digitalising a building’s core management services, rather than fancy add-ons, like sensors and digital lockers (as great as they are).
From key tracking and post-room management to a smooth and seamless visitor experience; from managing deliveries and room bookings to building repairs and maintenance, digitisation offers landlords an integrated and connected management solution, which ultimately provides occupiers with a much-improved experience. And it is this customer-centric approach that lies at the heart of the all-important space-as-a-service experience.
The reality is that the smart building tech that enables this experience need not cost the earth. Indeed, affordable tech that has an enormous impact on improving the occupier experience is readily available.
However, critically, ensuring the affordability of smart building tech requires a move away from the London-centric practice of charging tech per square footage, which leads to higher costs. At Locale Group, we have never adopted that model, preferring more sustainable pricing structures that are more affordable for landlords, particularly those (the vast majority) with buildings in class B locations or outside of London.
So when the value engineers begin to run the rule over an office project, not only must the green features remain, but smart tech should too – they just need to ensure that the focus is on the digitisation of the core services of a building, rather than gadgetry. Doing so will ensure that, in tough times, landlords and developers can still produce a product that will attract occupiers over the medium to long term, meaning their buildings will remain lettable beyond the current crisis.
Guy Windsor-Lewis is CEO and founder of Locale Group