You’ve probably already heard about Smart Cities. But what are they and what does it take to be one? There is an abundance of developments and innovations that foster a new level of interconnectedness, but how will this affect our lives – and how will it affect the commercial real estate (CRE) sector? Read on and find out what a Smart City is, what life might look like in a not so distant future, and what this means to CRE.
Smart City
A Smart City is defined as “a city seeking to address public issues via information- and communications-based technology (ICT) solutions on the basis of a multi-stakeholder, municipally based partnership” .
But what does that mean? When a city is smart, it can link networks of people, businesses, technologies, infrastructures, consumption, energy and spaces together. This level of connectivity not only improves competitiveness, but it also generates greater and more sustainable economic development and a better quality of life.
To put it short, Smart Cities are more sustainable, efficient and livable than today’s urban areas.
Six Characteristics of a Smart City
When people consider whether a city is smart or not, they assess the city on six characteristics :
Smart Economy is e-business and e-commerce, increased productivity, ICT-enabled and advanced manufacturing and delivery of services as well as ICT-enabled innovation. It also involves local and global interconnections with physical and virtual flows of goods, services and knowledge.
Smart Environment is the sustainable development of a city, e.g. renewables, ICT-enabled energy grids, pollution control and monitoring, renovation of buildings and amenities, green buildings, green urban planning and re-use and resource substitution.
Smart Governance is services and interactions which link and integrate public, private, civil and European Community organisations so the city can function efficiently and effectively as a whole. The primary enabling tool to achieve this is ICT assisted by smart processes fueled by data.
Smart Living looks at ICT-enabled lifestyles, behavior and consumption as well as healthy and safe living in a culturally vibrant city with diverse cultural facilities and good quality housing and accommodation.
Smart Mobility includes ICT-supported and -integrated transport and logistics systems, e.g. sustainable, safe and interconnected transportation systems with a priority given to clean and often non-motorized options.
Smart People covers education, digitization, e-skills, having access to education and training, human resources and capacity management, within an inclusive society that improves creativity and fosters innovation.
An Ordinary Day in a Smart City
Knowing the dimensions of a Smart City, you may wonder what life will be like in future. If we look at some of the innovations already out there, an ordinary day could look like this:
- Your home is an intelligent smart home eco-system where you can easily access and control, e.g. light and temperature, via apps.
- You drive in an automated vehicle, and while commuting you can check emails or order groceries online.
- Your carbon-neutral workplace has intelligent climate thermostats and smart office devices that streamline processes and reduce time spent.
- Smart office technology enables a seamless interconnectedness with your organization, colleagues, customers and projects.
- When you reach home, the groceries you ordered in the morning is standing at the front door, and the city lights turn on and automatically adjust the brightness to current weather conditions.
Naturally, this is only a guess on some of the changes we are facing, and we can’t know for sure, what life will be like in future Smart Cities, but Internet of Things solutions will certainly be an integral part of all parts of life.
How Smart Cities Impact Real Estate
When our habits and patterns change, and as the level of cities’ smartness increase, it will affect the real estate sector. But how?
According to McKinsey Global Institute, the real estate sector should prepare for a shift in land values. They state that “Smart mobility applications such as on-demand minibuses, and eventually autonomous cars could raise land values in areas that are not well served by conventional forms of public transportation” .
Going forward, buildings or areas that are hard to upgrade may become less attractive, and developers have to consider the costs of retrofitting older properties that lack smart features, while investors, owners, and occupiers need to consider the cost of installing smart features into decisions regarding where to purchase, live, or work.
“Invest in the suburbs, possibly the inner suburbs, of cities in the developed world. In advanced cities, the biggest cost of commuting is often the time. Fast and efficient commute systems allow people to enjoy larger living spaces without sacrificing accessibility, and thus will drive the suburban real estate market upwardly”, says Professor Richard Barkham, Global Chief Economist, CBRE in Capital Watch .
Smart Cities are data-driven, and the abundance of available information on, e.g. traffic and land use are very likely to affect the value of properties and may be used as a competitive advantage.
Retailers, for example, can use this kind of data in location decisions, and those who can interpret the data to make the most informed decisions about which properties to rent or buy may get a head start.
Combined with more detailed data space utilization plus the growth of the sharing economy can support new leasing models, disrupting the standard annual or multiyear leasing system.
Smart Cities require smart buildings
As cities evolve and intelligence levels rise, the real estate sector will see an increase in the number of smart buildings with lower energy consumption and operating costs as well as intelligent preventive maintenance features . The advantages of smart buildings are many, but an important one is the possibility to provide detailed building occupant data analysis.
Connectivity sits at the core of smart buildings where users are linked to the standard on-site facilities like parking, conference centres and other services through apps and Internet of Things services.
Solutions in the field of building technologies and management, particularly power and lighting management of existing and new buildings and developments, including outdoor lighting, can be applied to most building developments and city contexts. Short-term electricity savings are the main impact. Key technologies include smart plugs, light sensors and power management automation software. One hurdle in many rental office markets is the inclusion of the cost of energy in square metre rental prices.
Now, real estate developers are also integrating automation systems and mobility options into their properties to adapt their current offerings to meet Smart City needs. New sensor-software allows companies to track how employees use desks, meeting rooms and amenities , and this kind of information can be used to improve the overall utilisation of a building.
Planning for the future
A prerequisite for smart building technology is careful planning for digital infrastructure to support these ICT-based services and apps. Technology is indeed at the heart of the new, intelligent buildings, and CRE will play a critical role in creating truly Smart Cities .
Smart Cities create and connect human capital, social capital and ICT infrastructure to generate greater and more sustainable economic development and a better quality of life. The shift to intelligent cities and buildings will have a massive impact on all aspects of real estate, and there are opportunities for both investors, owners and occupiers to optimise efficiency and effectiveness of real estate processes and planning.
The course is set: Smart Cities will, in all likelihood, be the new normal in a very near future.
Sources
- Mapping Smart Cities in the EU, 2014, European Parliament, Policy Department A: Economic And Scientific Policy
- The Self-Driving Car Timeline – Predictions from the Top 11 Global Automakers, Emerj Artificial Intelligence Research
- McKinsey Global Institute: Smart Cities: Digital Solutions For A More Livable Future
- Smart Cities: Smart Real Estate Strategies
- The World’s Smartest Cities and the Applications That Got Them There
- CRE Opinion: Smart Cities Need Smart Buildings
- The impact of Smart City on Real Estate
- Anatomy of a Smart City
