Brian Turner, CEO, Buildings IOT looks at building trends for 2023.

The commercial real estate and building management industries have had time to explore how to plan—and profit—in a post-COVID world. As one component of the overall industry, the U.S. engineering and construction sector started 2022 off strong with an 8 percent growth in construction spending, according to Construction Analytics.

However, with rising costs and labor shortages, we can expect different growth rates between various industry segments as we head into Q2 of 2023.

Deloitte's 2023 Commercial Real Estate Outlook reveals that only 40 percent of global real estate chief financial officers expected to finish 2022 with higher revenues than the previous year, and 33 percent anticipate expense cuts. Despite an uncertain interest rate environment, commercial real estate buyers and sellers expect to see values stabilize while enjoying new tax credits and incentives to launch exciting new projects. As people simultaneously return to the office while tech giants make mass layoffs, lower occupancies will leave building owners and managers rethinking the best use of their property and capital while re-evaluating tenant needs and offering flexible options.

As building owners and managers rely on the promise of new proptech to help tenants and occupants maximize their workspaces and increase the value of their properties, 2023 will be a year for the ROI of developing and adopting building technologies. Here’s a look at some of the trends we’re seeing emerge.

Adapting spaces as needed

To meet the hybrid needs of the evolving workplace, property owners and managers are investing more into existing properties to create greater value in their current portfolios. This could include designing spaces for maximum tenant revenue while minimizing redundant office space and property risk. IoT-based solutions that track availability can create transparency with tenants and ensure smooth shared use. In this way, multiple organization types, such as offices, schools, kitchens, light manufacturers, and indoor growers, can find compatibility and value in a single, mixed-use property.

Offering flexible leases

Offering tenants shorter-term leases can provide property owners with a defense against uncertainty while offering the flexibility and opportunity to raise rates in line with inflation. These can be balanced with longer-term leases for anchor tenants whose client experiences are tied to having a physical space, such as restaurants, fitness centers or spas.

Maximizing efficiency through predictive maintenance

According to Forrester’s Global Tech Market Forecast, from 2022 To 2027, global tech spending will grow 4.7% in 2023, reaching $4.4 trillion. Advisors warn that failing to invest in technology could be short-sighted and that real estate firms that can accommodate flexibility and risk can gain an advantage by seeing how technology can maximize efficiency. 

Honeywell reports that building management systems will increasingly leverage algorithms to optimize both energy efficiency and occupant well-being. Such systems can reveal hidden energy waste and weigh conditions and demand against current occupancy, weather conditions and utility pricing. This technology can allow an increased focus on predictive maintenance rather than relying on alarms and break-fix operations to make preemptive insights that would enable pivots that keep operations online and running smoothly. 

Increased focus on ESG

Building construction and operation accounts for 40 percent of greenhouse gas emissions. Property managers face increasing pressure from financiers, regulators and tenants to decarbonize, leading them to implement ESG strategies. While Deloitte found that real estate firms are in the early stages of managing their ESG compliance, with just 12 percent prepared to implement changes immediately, most plan to start or accelerate the incorporation of ESG data over the next year or two. 

Tax credits from the federal Infrastructure Investment and Jobs Act, as well as the CHIPS and Science Act, will help fund the transition toward electrification. More buildings will be constructed with sustainability and energy efficiency in mind, with assets such as rooftop solar and parking lot canopy structures and electric pumps to reduce fossil-fuel-based HVACs and water heaters. Incentives will also direct interest toward brownfield development. 

Leveraging AI to do more with less

CIOs are experiencing increasing responsibilities as companies move from toying with AI to integrating it and relying on it for many business operations. Data from proptech solutions will be critical in helping maximize efficiency, assess energy usage, track ESG progress, improve occupant comfort, and ensure cybersecurity as AI becomes integral to digitized building technology system design.

With tighter budgets, companies will seek to do more with less by leveraging existing infrastructure to solve alternate use cases, such as adapting security systems to solve occupancy use cases without adding specific occupancy sensors or employing software solutions to problems that have historically been solved with hardware, increasing the adoption to cloud technologies, and limiting those on-prem.

Persisting supply chain and inflation concerns will lead CIOs to prefer longer-term partner agreements or open-source solutions in order to avoid vendor lock-in and automatic renewals. CIO Dive reports that executive focus will center around obtaining the most value from investments in SaaS solutions, people and processes to drive business while maintaining a positive experience for employees and customers. 

A smart-building future

A strong push to provide flexible work environments, maximize efficiency, meet energy consumption and emissions regulations and rely on AI in 2023 will continue to bolster the smart building market. Global growth is projected to grow from $80.62 billion in 2022 to $328.62 billion by 2029, at a CAGR of 22.2 percent.

Some of these technologies have been in place for some time. However, with the pandemic in the rearview mirror and a current favorable political and regulatory environment, building owners and managers can take advantage of opportunities or accelerate initiatives that have been underway.

Technology is quickly becoming a core element of every part of building operations. While adoption will vary between firm size, segment and location, companies can benefit from taking steps now to explore how new partnerships, flexible arrangements, and more robust data can drive value in their business.