Survival of the smartest: The path to higher occupancy rates for commercial landlords

Dan Drogman, CEO & Founder, Smart Spaces; Phillip Shalless - Senior Asset Manager, AXA IM Alts; Simon Robinson, Head of UK & ROW Services, Beazley

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In a rapidly evolving commercial real estate landscape, the concept of smart buildings has moved from a futuristic ideal to an essential asset for property owners. We need look no further than London’s Canary Wharf, the once-unrivalled hub of London’s financial sector, now weighed down by the challenges of ageing infrastructure, evolving tenant demands and unprecedented office vacancy rates. Adapting to these realities is not optional. It’s necessary for survival.

 

The story of Canary Wharf, whose principal asset owner, Canary Wharf Group, is plagued with 21 per cent vacancy rates, underscores just how important it is for the real estate industry to modernise. With key tenants such as HSBC and Barclays vacating or downsizing their spaces, the pressure on building owners to reimagine and retrofit their properties is immense. The first generation of Canary Wharf buildings, which began construction in the late 1980s, are now facing an expiration date on their relevance, as their windows, elevators and air conditioning systems require costly upgrades to meet modern safety, security and environmental standards.

New York’s situation is little different. It has city-wide office vacancy rates of 14 per cent, with a staggering 33 per cent drop in leasing activity since 2019. Companies have reduced their office spaces by 40 million square feet in the past four years alone. Hybrid working, a post-pandemic phenomenon, is partly to blame. So is the changing regulatory landscape in the city, as seen, for example in Local Law 97, which imposes fines on building owners who fail to comply with increased energy efficiency mandates, further disincentivising prospective tenants.

There is a way out of this gloomy predicament, however: smart buildings. Blending IoT and AI technologies, they offer significant advantages for commercial real estate owners, especially those with ageing property portfolios, helping to boost their occupancy rates. Energy efficiency, improved tenant satisfaction and having a competitive edge against other market players are just a few of them. Investing in smart buildings – new builds or renovations – can also reduce operational costs. To give an example, the use of smart HVAC and lighting systems can be optimised according to when and where people are in the building. This saves a fortune in energy bills, which is crucial given high debt and uncertain market conditions. It also lowers the building’s overall carbon footprint.

Improved tenant experience means more contract renewals and better lease terms. Through smart building amenities such as personalised climate control, advanced security and white-label solutions, companies can tailor employee experiences to their brand, even down to the way they use collaborative spaces, order food and put on social events. For tenants, this is increasingly important in attracting and retaining employees in the modern hybrid marketplace, where staying in the comfort of your home is the alternative.

 

Smart buildings can also assist in regulatory compliance and futureproofing of the types of worn-out buildings dominating New York’s skylines, such as by helping them meet energy efficiency standards. With a reduced carbon footprint being increasingly important in major cities, and with buildings accounting for about 40 per cent of total carbon emissions, the fact that building owners are now able to analyse, optimise and reduce emissions rates means they can revitalise their office spaces and get tenants back in. Throughout 2023, occupiers consistently favoured office spaces with superior ESG credentials, with 56 per cent of acquired space located in buildings rated “excellent” or “outstanding” by BREEAM, making a reduced carbon footprint a hugely significant factor in driving occupancy rates.

 

Survival of the smartest is now an inherent force driving the evolution of commercial real estate. We are witnessing a rewriting of the asset owner’s guide to increasing occupancy rates, for ageing and new buildings alike. When the current market is stacked so heavily against them, those owners wanting to avoid the fate of the dodo would be wise to start adapting now.

 

Smart Spaces is a global smart building platform that powers 85 million square feet of commercial real estate across 26 countries. Smart Spaces optimises environments for people and the planet by bringing efficiency to enterprise companies, knowledge to commercial real estate owners and convenience to employees. Having worked with some of the UK’s most iconic buildings, including 22 Bishopsgate in the City of London, Smart Spaces has become the go-to building management platform for companies looking to make buildings leaner, greener, cheaper to run and more comfortable.

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Discover more about Smart Spaces here.