During the covid crisis, it became briefly fashionable to entertain an extraordinary idea – that the age of the city was coming to an end and that remote working and the need for more sustainable ways of living heralded the end of urban expansion.
That view could not have been more wrong. Cities are showing no signs of retreat. What is more, rather than being a threat to sustainability, they are likely to be the solution.
Richard Barkham, global chief economist at international real estate group CBRE agrees that the pace of growth in urban centers can ebb and flow, and events such as covid can prompt a modest rebalancing to suburbs, but he doubts that the deeper trend will change. “There is 2,000 years of history to tell you that the central areas of big cities are going to survive,” he says.
According to the United Nations, the world’s urban population has more than quadrupled since 1950, rising from 750 million to today’s 4.2 billion, or 55 percent of the global population. By 2050, the UN forecasts that figure will have risen to 68 percent.
But as cities become inevitably larger, they can also become ‘smarter’, and the smart urban environment means a different approach to real estate.
What is smart?
There is no single definition of a smart city, though many organizations – from governments to technologists and even the UN – have attempted to define frameworks that capture the key qualities of smartness.
“Having a city that is smart isn’t an end in itself. It is the means to something else”
Clean transport, clean air, efficient facilities and public spaces and low carbon emissions are obvious features. Underpinning those features are data and digital connectivity, because the key to smart cities is efficiency in resource management. The development of smart cities is inevitably a multi-faceted process involving not just real estate, but also utility and communication services, transport operators and, of course, public authorities.
Greg Smithies, partner and co-head of climate tech at property technology venture capital group Fifth Wall, fears the term ‘smart city’ can just be a buzzword, “a nebulous term that doesn’t necessarily mean anything to anyone.”
What matters, Smithies says, are the outcomes that so-called smart cities deliver. “How much do your citizens have to pay for fast high-speed internet? How clean is your air? Are people able to afford the rent? Having a city that is smart isn’t an end in itself. It is the means to something else.”
There are efforts to bring rigor to the term ‘smart city’ and to measure those outputs. The Smart City Index 2022 – compiled by The Institute for Manufacturing at the University of Cambridge and the Digital Transformation Research Centre at the Yonsei University in the Republic of Korea – identifies 31 smart cities. Among them are major European cities such as London, Paris, Stockholm, Dublin and Barcelona, as well as US cities such as Chicago and Los Angeles, Asia centers including Shanghai, Tokyo and Singapore and the Middle East hub of Dubai.
There are numerous other lists, and while the cities named above frequently appear in such lists, there is no universally agreed index.
For real estate, and commercial real estate in particular, being part of a smart city comes down to two factors: the sustainability of real estate assets themselves and the interconnectivity of those assets with the wider urban ecosystem.
While Barkham has few doubts about the future growth of cities, he sees some of the recent short-term events as requiring a fresh outlook for real estate. “What we are seeing is a relatively slow recovery in office occupancy [since covid lockdowns]. Occupancy is drifting up, but particularly in the States it is drifting up slowly,” he says.
“The revolution in the office market is leading to greater use of big data technologies to manage quite expensive office space”
“What does that mean in terms of smart cities and smart data? What we are seeing are companies increasingly not trying to furnish their whole space needs through their own portfolio. They are looking for, say, 80 percent and going for the much higher amenity space – in which I would include the LEED-certified space,” Barkham says, referring to the Leadership in Energy and Environmental Design certification system.
The other aspect of real estate in a smart city is smarter utilization of the assets. The example of WeWork is the most obvious, and while the company has endured a troubled recent history in its attempt at an IPO, Barkham believes its model reflects how real estate will evolve to play its part in the smart city. Barkham refers to this as the ‘hotelification’ of commercial real estate.
“Flexible operators have been at the forefront of fully understanding the dynamics of their buildings, monitoring usage patterns by the minute – just like hotels – and changing their rates depending on supply and demand. One of the things about WeWork is the big data operation behind it. The revolution in the office market is leading to greater use of big data technologies to manage quite expensive office space.”
The highest levels of digital communications are one of the key features of smart cities. Hamburg is one European city keen to boast of its smart city status. A national study by digital economy trade body Bitkom recently named it Germany’s number one smart city.
Speaking after the award was announced in September, Hamburg mayor Peter Tschentscher cited the city’s digital strategy as key to its smart status. “Hamburg’s strengths lie in the provision of fiber-optic and public WLAN networks, in smart traffic control and in the digitalization of administration.”
Even more recently, Hamburg’s government announced the introduction of smart thermostats in public buildings, in partnership with real estate group Sprinkenhof, with the aim of reducing energy consumption by 30 percent this winter.
A more substantial contribution from real estate to the smart city might be the capacity of real estate itself to contribute to the greening of the energy grid. Barkham describes logistics groups as playing a potential role in smarter cities through their use of big data to maximize the efficient use of warehouse space.
At the same time, he highlights the potential of warehouses themselves – typically covering a large, wide area and relatively low-rise. “The other thing that we are looking at is just the capability of all of that industrial space to take solar panels on the roof,” he says.
Such ideas reflect the underlying principle for real estate in a smart city – the maximization of space resources. But it also leads into another key aspect of smart urban environments – the creation of networks of both energy and information.
The use of real estate assets as potential sites for renewable energy generation naturally requires links into the grid. But this in turn can be maximized for efficiency by using digital solutions, and it applies to both the development of new assets and the expansion or diversification of existing ones.
One example of this is the Open Data Platform developed by UK Power Networks – the energy electricity distribution group responsible for cabling and substation infrastructure across Southeast England, including London.
The ODP is an open access database of the infrastructure providing information on capacity, links and access to generating sources across the region. The platform is open to any interested third party.
Matt Webb, head of enterprise data management at UK Power Networks, says: “The role that we play in terms of contributing to net zero is to design, build and construct a network that runs and operates as efficiently as possible. The underlying absolute need is the requirement to keep lights on for our customers.
“But beyond that, the second component of our contribution to net zero is ensuring that we are not a blocker to the connection and proliferation of low-carbon technologies: wind farms, solar farms and so on.”
The infrastructure mapping and open access model may also be of use to real estate development, making it possible for developers to identify where capacity is highest, where renewable energy sources exist and, should they have their own renewable generating capacity, where it can feed into the system. Data sharing with other organizations, and the ability to see the interest in network capacity in specific locations, will enable ever smarter forecasting of demand and, therefore, planning for load capacity.
In the future, Webb sees an entire ecosystem of players from real estate to local authorities to transport companies and other utilities developing and sharing data in a way that maximizes efficiency in every dimension. “This is about the built environment in its totality,” says Webb.
The benefits for real estate of smart cities are most obviously lower costs, higher utilization of assets and, of course, the fact that connected locations that are attractive to live and work in naturally attract growth businesses and skilled workforces and so are likely to enjoy better economic growth.
Getting the most out of these smarter urban environments will also require real estate to be a more active partner in those cities. Saving energy, or even generating energy of their own, and most importantly plugging into the networks of all kinds that will be the lifeblood of smart urban living.