How to Calculate the Value Proposition of Smart Buildings

A recent Deloitte study projects that sensor deployment in commercial real estate is likely to grow at a compound annual growth rate of 78.8 percent between 2015 and 2020 to nearly 1.3 billion. It is clear that smart building technology is evolving at lightning pace and delivering way more than just energy savings.

Energy savings is typically the driver that sparks interest in investing in smart building solutions. Energy savings alone does not present a complete picture of the value proposition. When calculating the ROI on smart building investments, it is important to consider all the other ways smart building solutions contribute to a company's bottom line. According to Haver Analytics and Citi Research, talent accounts for 60% of corporate expenses. This means any investment to improve the physical work environment can have a huge impact on the bottom line. 

What is a Smart Building?

A smart building uses a combination of technologies to automate building management.

1. Sensors detect changes, such as occupancy, temperature changes or motion in a room. Sensors feed that information to building management systems.
2. Building management systems enable facility managers to automate and manage the different variables of a building's operation, including temperature and lighting.
3. Collected data is stored and analyzed over time so that adjustments can be made and further savings can be realized.  

What is the 3-30-300 Principle?

JLL, a professional services firm specializing in real estate and investment management, has developed a framework that illustrates the exponential value of a holistic approach to a smart building strategy. The 3-30-300 principle uses the average order of magnitude between a company’s costs for utilities, rent and payroll. The industry has been quick to refer to this rule of thumb when considering human capital and the relationship between sustainability and productivity.  

On an annual basis, a typical organization spends per square foot: $3 on utilities, $30 on the cost of the space, and $300 on payroll and expenses associated with the occupants. Using the 3-30-300 model, JLL claims the greatest financial savings from greening a workplace may not be in energy but in productivity. For example, where a 10% increase in energy efficiency would yield $0.30 savings per square foot and a 10% decrease in rent would save $3.00 per square foot, a 10% gain in productivity is worth $30 per square foot. Another calculation example of the 3-30-300 principle is illustrated below.

Buildings Optimized for Occupants

A recent report from Morgan Stanley claims that buildings optimized for occupants command 3% more rent and gain a 10% increase in equity value. Lighting, as well as temperature, plays a very important role in the overall comfort and productivity of occupants. A dynamic, smart workplace is responsive to the needs of the people who work there, creating a better work environment.  

Here are a few examples of how building systems can be optimized for occupants.  

• Give employees greater control over temperature and lighting
• Create a healthier workplace by optimizing HVAC and lighting
• Design lighting scenes that provide the right lighting to perform specific tasks
• Implement technology for mobility and easy data access  

Adopting connected lighting is a foundational element of a smart building and linked to employee wellness and productivity. Psychology Today reports that a new study conducted by the Interdepartmental Neuroscience program at Northwestern University titled, "Impact of Workplace Daylight Exposure on Sleep, Physical Activity, and Quality of Life," concludes that there is a strong relationship between workplace daylight exposure and office workers' sleep, activity and quality of life.  Office lighting that mimics the natural light cycle can improve health and well-being as well as boost productivity.  

A study conducted by the American Society of Interior Design indicated that 68 percent of employees complain about the lighting situation in their offices. Smart lighting offers an opportunity to help by making lighting adjustments automatically for occupant comfort—and also improving the bottom line in unexpected ways.

To learn more about how lighting is impacting smart buildings, download our ebook below.