Smart Buildings – Innovation in Space Utilization
Today, buildings account for 28% of global emissions. Largely, this is driven by increasing electricity usage, and, in extreme cases, an increase in weather ramping up heating and cooling demand. Potential for decarbonization remains untapped due to the widespread use of less-efficient technologies, a lack of effective policies and insufficient investment in sustainable buildings. Building management provides the opportunity to save 50% of heating, ventilation, cooling and lighting energy costs globally.
Despite being a relatively large market, $75 billion globally, the fragmented nature of the different offerings from corporates and start-ups available for building management software, has meant customers still have complex purchasing decisions to make. Additionally, the real benefits offered by newer digital technologies are held by individual companies with core domain expertise. This highly concentrated and non-homogeneous market dynamic has driven sector leaders to rethink how they compete with newer market entrants.
Traditionally, energy savings has been a driver for building management globally. Increasingly, the decreasing costs of technology and the development of efficient networking protocols mean then there is an increasing demand for non-energy benefits. For commercial buildings, energy optimization is 20% of the operational cost of the building and 60% is the cost of maintenance and personnel. Gradually, energy benefits are becoming secondary to operational efficiency and non-energy benefits such as occupancy analytics, air quality and worker productivity. Occupancy analytics is a key area of innovation playing a role is a market that is starting to see signs of maturity.
Growing demand for non-energy benefits
Space utilization is becoming the significant differential metric particularly in the commercial building market. According to real estate services firm JLL, office space in the US costs $43.79 per square foot per year on average. To many organizations, this is an operational cost which acts as a direct hurdle to funds which could be otherwise spent on talent recruitment, staff retention and workforce productivity. In the traditional commercial building market space, it’s typical for utilization rates to be underestimated and therefore, the cost to the user overestimated. Additionally, as employees increasingly work from home, facilities-management corporates must come up with ways to address the shrinking workforce and growing oversupply of office space. As a result, data-driven solutions which can optimize the productivity metric have been gaining increasing momentum to address costly underutilized space.
IoT sensors in combination with SaaS platforms are helping to power dynamic workspace strategies, by identifying where employees are best situated to work at any specific moment. Vergesense founded in 2017, is a San Francisco startup providing a SaaS platform helping optimize workspace utilization. Their product provides real-time and historical counts of the number of property occupants, giving users the ability to measure utilization rates across a facility, as well as identify open desks, dynamically assigning staff members to their desk to drive workplace efficiency.
Other commercial buildings outside of office workspace have also been impacted by space utilization. 50% of global commercial buildings space is either empty or underutilized. The key drivers for each building type vary depending on building type:
Commercial offices – Focused on building performance/tenant comfort including space temperature, air quality, spacing, lighting, water detection and preventative maintenance.
Hospitals – Ability to understand occupancy, energy resiliency, security, threat and fault detection.
New builds – Retrofit is the focus of most, some with funding through utility programs incentivizing adoption.
Occupancy Analytics Innovators are differentiated based on the strength of their algorithms, market application and business model.
In the HVAC market, for example, space sensing analytics can monitor if space should be heated, cooled and ventilated based on real-time data and trends on when spaces typically are occupied.
Comfy, which was acquired by Siemens last year, provides a software application for heating and cooling systems, creating a zone-level optimization of space conditioning and occupant control in commercial buildings, varying temperature based on space utilization and saving between 15-20% on energy bills.
Another innovator is ThoughtWire, a Toronto-based venture-backed startup that provides digital twins based on data from people, process and the physical built environment. This October, the startup partnered with Schneider Electric to help digitize hospital buildings. Healthcare facilities are notoriously operated with fragmented data available from a variety of different systems with little connectivity between facilities management and clinical operations. Thoughtwire’s Digital Twin enables Schneider Electric to improve patient outcomes with a data model of a hospital’s building systems, clinical and IT systems, IoT devices, workflows and people occupancy data.
Who are the corporates active in the space?
Other industrial corporates are introducing building space utilization software solutions. Aside from Siemens and Schneider Electric, Honeywell has introduced a connected building software called “Honeywell Vector Space Sense” which is already being used in a Ontario’s-based hospital to better understand the use of clinical and office space. Most of the industrial incumbents are partnering or investing in start-ups via corporate venture capital arms, integrating their technology into a broader IoT Platform, where the corporates can position themselves as value-add partners and act as market catalysts to help accelerate global customer reach.
The advent of workspace-as-a-service is driving the interest from new real estate service companies such as WeWork and Convene. WeWork has made numerous acquisitions in the tech enabled facility management and occupancy analytics space.The company acquired space planning start-up SpaceIQ in July. It also acquired Teem, a company specializing in technology that alerts customers when a conference room is being booked, for $100 million last year, and also Euclid , which lets that same customer know how many people showed up to the meeting. Occupancy analytics is playing a key role in the company’s strategy to move to a software-as-a-service provider by offering workplace insights that will be sold to companies that aren’t renting space but want to leverage their own offices with the WeWork model. This software strategy is a viable route for the company to help bear the brunt of significant revenue loss. Recent support from Softbank may see a further push to this new this business model to reduce the company’s risk profile.
The broader building management market
More broadly, the building management market has been undergoing considerable consolidation. Acquisitions in the space have increased by 27% over the past two years. An accelerating rate of innovation has left the corporates falling behind and ultimately realizing they couldn’t lead the way on all fronts of the smart building market. The result is a ramp up of acquisitions. Advanced HVAC automation (see our research on this) and utility energy management (which we also looked at here) are two of the other technologies being bought.
For industrial incumbents, consolidation may limit future buying options, making competition tougher as the market matures. For the end customer (building operators and owners), consolidation will help to simplify purchasing decisions and accelerate technology adoption. Ultimately, startups in this space will have a greater choice of how to address scale and marketability and if their offering is differentiated enough to stand out.
Keep an eye out for
The growing market for technology-enabled Energy-Efficiency-as-a-Service energy providers who are looking at the service-based business model as way to combine funding, technology, implementation and active energy saving management to reduce the barrier to market entry. Carbon Lighthouse for example, a provider of actively managed energy service, offers customers a CAPEX free service, guaranteeing increased savings per month on their utility bills, as well as a promise to pay the difference if it doesn’t hit the target.
Energy majors who are pursuing more diversified, vertically integrated offerings, and are consequently looking at new energy efficiency innovation as strategic pathway.
Innovators and investors who are recognizing the value of offering advanced asset dispatch services in combination with traditional energy management. Players like Axiom Exergy for example, are offering an energy management solution and a refrigerator load aggregation service, combing building energy management and demand-side response.
Want to find out more about the smart building of the future and the innovators working on them? Join us for Cleantech Forum San Francisco on 27-29 January 2020 and attend the panel discussion on the topic. Speakers will make market predictions and answer your questions about the future of sensor-enabled, data-driven, occupant-focused buildings.