The Economics of Energy Management in Commercial Real Estate Facilities

by Aanchal Singh, Research Analyst, Frost and Sullivan — September 2015 — The global trend towards cutting carbon emissions and a strong societal case for climate control are inspiring energy efficiency investments to enhance value in real estate portfolios. Given that existing buildings account for 40 percent of energy use in North America and at least 35 percent of total carbon emissions, new real estate portfolios represent a growing potential to track and implement energy efficiency. With numbers like these it’s no wonder that commercial property owners are looking for ways to use energy more efficiently and cut energy costs.

The economic and policy climate of North American is creating new momentum for green and energy-efficient buildings. Hence, the current scenario where commercial real estate facilities are to focus on an energy management plan rooted in a sustainable building philosophy based on cost-effectiveness and energy-optimization. The existing commercial real estate in a complex and fragmented market are in need of some tailored tools to adopt energy efficiency best practices for competitive advantage. Once these tools are well-identified, the real estate facilities will demonstrate operational sustainability which is a cornerstone for the real estate market.

The Commercial Buildings Energy Consumption Survey (CBECS) estimates that there were 5.6 million commercial buildings in the United States in 2012. Since 2014, the market depicts a 14 percent increase in the number of buildings. Since then, Frost and Sullivan analysis indicates that the total Energy management systems (EMS) market earned revenues of $8,450.2 million and is expected to depict a positive growth rate in the next few years. The question that arises is what progress has been made so far by commercial real estate (CRE) companies on energy management adoption thus far? In addition to this, what can the CRE players do now to evaluate sustainability adoption in terms of operational efficiency and productivity?

Energy management as source of savings

With improvement in technological advancements; big data convergence and cloud infrastructure have improved efficiency and comfort in commercial real estate spaces. Monitoring and security comprise some of the main challenges in commercial facilities management. To overcome this issue, simplifying system-wide control over energy consumption and security can help utilize energy efficiently. Hence, the application of integrated systems is expected to be an effective strategy. This not only enhances interoperability of multiple systems to control and track energy use, but also addresses how to derive meaningful analytics that respond to real business needs in CRE’s. The potential of analytics to reveal insight that can boost competitiveness, real estate facility owners in the contemporary scenarios are finding newer approaches to process, manage, and uncover some of the most interesting unexplored patterns in a commercial space other than just tracking energy use through the integrated systems.

CRE’s EMS streamlines metering and energy of the entire real estate facility
Source: Frost and Sullivan

Real estate facilities are slowly moving from traditional database management systems, towards real-time predictive analysis along with cloud based meter management. This trend is enabling CRE to move to a future-oriented view of what’s ahead and to dig down to every situation. The benefit of focusing on real-time management in facilities helps customers with real-time energy consumption feedback. With real-time management abilities, in any energy management system data becomes actions which help in fault detection and utility consumption revealing instant savings. This feature in most current energy management systems in CRE comes with a robust meter management feature which enables electrical meters to produce periodic utility bills and automated tenant invoicing. Utilizing a metering infrastructure has not only led to two-way communication, but has dramatically reduced the deploy time and streamline the process the process of delivering the bills to the CRE facilities.

In the past, most utility bills did not have enough granular data to understand where usage is occurring. However, through real-time monitoring and meter management, facilities can easily understand the historical data, current usage or any future anomalies towards sustainable operations. Energy management based on this premise can act as a central repository through which meter data can also be collected for asset valuation. This data-driven approach will enable facility owners and energy managers to monitor data at the asset level. This helps monitor all individual sites and equipment at interval level.

In addition to the operational benefits of energy management systems, they have been able to cut energy, operations and maintenance, and repair costs by 10 percent or more. The systems can easily take care of tasks that could take several people to handle manually. Hence, if the systems are adequately commissioned the operating costs of maintenance, labor, replacement, and lower electricity can be dramatically reduced to achieve operational savings and productivity.

The year ahead…

Given the CREs bottom-line financial impact; the facilities are dedicating their focus on smart features in their energy management systems such as asset level management, meter management, transparency of data, and interoperability of systems. Furthermore, CREs can leverage the software capabilities of intelligent EMS to automate all historical and current information to the tenants and facility owners with respect to energy usage and payments of bills. Hence, the intelligent features used in conjunction with a robust software system can improve building operations, streamline processes and reduce energy consumption

The benefits of smart systems are not without any challenges. Key barriers to energy efficiency in commercial real estate include insufficient understanding of energy efficiency and financial valuation practices behind it. Investors, real estate owners, and tenants are continuously keeping an eye on deriving tangible benefits through sustainable efforts by embedding energy saving and sustainable solutions into entire CRE structure. Therefore, along with energy savings, there is also time for more innovation which will not only focus on energy savings tools and technologies, but innovation which will collaborate technologies with the role of commercial energy manager to evolve further to create a positive impact on the commercial real estate market.

Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today’s market participants.