A year or more of lockdowns, quarantines, and social distancing regulations will put a huge financial strain on public and commercial spaces. As we emerge from this crisis our buildings will be faced with a whole new range of drivers and barriers that will demand new approaches and realigned expectations. Our buildings will be under pressure to enhance safety for occupants, comply with a new range of regulations, and maintain gradual improvements towards pre-COVID goals such as environmental sustainability, and they will have to do all this within a new economic environment as the post-COVID recession kicks-in. Smart technology could hold the answer to challenges buildings will face, but only if they can find a way to pay for those upgrades.
“There is a ‘perfect storm’ of factors which are coming together to simultaneously drive change and make buildings smart,” explains a recent whitepaper by Siemens. “Firstly, the economic pressures resulting from the pandemic are focusing minds on ways of achieving building management cost efficiencies (especially through energy efficiency). At the same time, COVID-19 has introduced new rules and ways of working to ensure hygiene, infection control, and safety in buildings. Alongside these topical pressures are existing and emerging regulatory requirements that make fire and security upgrades mandatory. And various policies around the world are setting targets to reach higher environmental standards in buildings.”
The pandemic has pushed many organizations to their financial limits. Some will be heavily dependent on external financing to make the necessary changes to their facilities, changes that their future survival may depend upon. However, in what is expected to be the worst economic downturn for decades, after an extended period of public health and relief spending, public sector bodies are unlikely to have the financial capacity to help everyone. In order to survive, comply, and grow in the post-pandemic world, building owners and their enterprise tenants will need to find innovative ways to pay for the necessary upgrades to their facilities. Financing is emerging to fund this new era for smart building development.
“While there is wide consensus around the need to make buildings smart, all countries and sectors need a way of making that conversion financially sustainable,” states the whitepaper ‘Financing smart buildings: driving value in the new normal’. “The starting point is to use smart technology to reduce energy consumption in buildings. This produces hard financial savings that – through smart financing arrangements – can be harnessed to subsidize or even pay for overall smart buildings conversion. This can be done at an enterprise level, or in small incremental steps, each of which proves its return on investment.”
Smart financing for smart building conversions takes two clear forms. Firstly, whole building and multi-building conversions can access "Building Efficiency as a Service" (BEaaS) arrangements being offered by specialist financiers. Through the BEaaS model, integrated smart building solution providers introduce technology and systems, which can develop smart buildings that deliver a clearly predictable level of energy savings. This measurable reduction in energy costs can be used as the financial basis to effectively fund the cost of building conversions.
“While the level of energy reduction will vary, depending on external climate, cost of power, and other factors – in most cases the savings can be reliably reflected in a financing structure to deliver self-financing smart building upgrades,” explains the whitepaper. “Throughout, the building’s owner has had to put no capital at risk and has conserved their own funds for strategically important development activities – whether commercial growth or improved public services. In the post-pandemic period, where cash reserves have been used up and revenues are experiencing a downturn, the idea of self-financing smart building conversion becomes even more compelling...”
The second smart financing option for smart building conversions comes into play for those that need, or prefer to, make their upgrades in smaller incremental steps. These financing options depend upon the fact that building technology products for energy efficiency and smart capabilities come to market through a supply chain of distributors, value-added partners, solution builders, and EPC companies. The smart financing tools which help these suppliers and their customers invest sustainably in energy efficiency fall into two brackets, according to Siemens Financial Services.
“Firstly, where the solution provider has teamed up with an expert financier (who understands the technology, its applications, and its benefits) then financing arrangements – often based on leasing structures – can be tailored to fit the building owner’s/manager’s precise cash-flow profile, aligning costs with the rate of benefits and/or savings gained. Secondly, integrated forms of sales finance are a key part of the integrator’s or distributor’s value proposition, providing their clients with staged payments that ease the end-customer’s cash flow and make it easier to make investment decisions – often of higher specification solutions. For larger sales, the techniques are usually lease-based, whereas smaller product transactions might come with an extended payment term offer embedded.”
Commercial office buildings will be under extreme pressure to control occupancy in line with post-pandemic public health regulation in addition to on-going environmental regulation and tenant demand for productivity-enhancing developments. Simultaneously, they will be suffering from the financial strain of a year or more of unprecedented social and workplace disruption, as well as the tightening economics of the emerging recession.
Smart conversions will become necessary for these buildings to operate effectively in the post-pandemic era but traditional forms of funding for those conversions will be hard to come by. So, financing which depends on the predictable gains of smart technology, could be a key to survival and lay the foundation for a new era of smart buildings across the world.