CRE developers: Get smart on smart city initiatives

May 2, 2018

A blog post by Saurabh Mahajan, real estate manager, Deloitte Support Services India Pvt. Ltd.

In the early 1900s, the mass adoption of elevators had a major impact on the height of buildings.¹ As elevator technology advanced and costs came down, developers could add additional floors with relative ease. Many innovations like these have had a meaningful impact on the commercial real estate (CRE) landscape.

Smart cities could well be the innovation that transforms CRE in the future. At Deloitte, our view is that a city is smart when investments in human and social capital, traditional infrastructure, and disruptive technologies fuel sustainable economic growth and a high quality of life with wise management of natural resources through participatory governance.² In our 2017 outlook, Innovations in commercial real estate: Preparing for the city of the future, we highlight the need and demand for smart cities in light of the burgeoning urban population and insufficient real estate in urban areas.

Making a city smart requires enabling ubiquitous connectivity, deploying sensors extensively, capturing data for analytics, and integrating different technologies such as the Internet of Things (IoT), artificial intelligence (AI), and robotics. In Deloitte’s smart city framework, these technologies form the infrastructure layer and include information and communication technology. Spending on smart city technologies across the world is expected to rise to $135 billion in 2021 from $80 billion in 2018.³

Given the role of technology in smart cities, it is no surprise that large technology companies see a big opportunity and are leading the development of smart city projects. Some of the prominent ones include a project by Google affiliate Sidewalk Labs in downtown Toronto called “Quayside,” and a smart city program by another technology company in Denver.⁴ These projects include plans across different domains, such as environment, security, mobility, and quality of life. Some of the features in these projects include free Wifi connectivity, LED street lighting, different sensors for pollution, solar microgrids, security cameras, and spaces for autonomous vehicles.

These trends have widespread repercussions for real estate developers. For instance, some projects are expected to have flexible and modular buildings with robust exteriors and nominal interiors that can adapt to diverse uses and environments.⁵ This might mean a reduced need for property specialization and increased long-term utility for these properties if they adapt to different uses over time or become mixed-use, based on demand.

Further, technology companies plan to collaborate with local governments to introduce more dynamic zoning codes based on outcome rather than potential land use.⁶ This can open up vast opportunities for technology players for both new developments as well as redevelopment. Indeed, there is a need for smarter zoning codes across the US. There is precedence for this, such as the introduction of mixed use transit-oriented developments in California or zoning overlays in Tennessee in the early 2000s.⁷

It is apparent from the examples above that technology players seem to be disintermediating real estate developers; in fact, there are not many examples of smart city projects led by developers. Now is the right time for real estate players to join the smart city initiatives and consortiums, if they haven’t so far, and become players in the restructuring of the real estate landscape around the cities. Becoming actively involved in these initiatives can help CRE companies enhance their technical know-how through the inclusion of smart features in their real estate developments. Smart features can also enhance the utility of existing buildings by making them important nodes in smart cities.⁸ Finally, CRE companies can bring their valuable experience and expertise to the table and play an important role in smart city partnerships between the technology players and governments.