The Economics of HVAC Automation for Commercial Real Estate

What is HVAC Automation? Quite simply taking all of the heating and cooling equipment in a building and making it work more efficiently than just on a schedule or by immediate demand. The return for the effort to automate the operation of such equipment is good for several reasons.

HVAC Automation is typically an integral part of any “Green Building” project. Part of the reason for this is that automation systems provide the ability to measure variables and verify equipment operation. This measurement and verification process not only allows you baseline data but also to prove the HVAC systems are running the way they were designed to run.

So, why does automation present such opportunities for the business of Real Estate?

Primarily, it enhances the value of the real estate. The value of most commercial buildings is related to the net operating income. Lowering utility costs increases the net operating income on a dollar for dollar basis. Every $0.10/square foot saved in energy could increase the market value of the property by $0.80/square foot. A 100,000 square foot building could increase in value by $120,000 by reducing energy costs $0.15/square foot (according to the Minnesota Metropolitan Energy Policy Coalition http://www.mepc-mn.org/).

Relatedly, when HVAC equipment is operating efficiently and automatically, there is less wear and tear on the equipment itself which reduces maintenance budgets.

Secondarily, Green buildings get higher rents. “Green buildings are driven not by utility savings, but by upticks in rental income or resale value,” according to Alex Herceg, a Lux Research Analyst and the lead author of a 2014 report titled, “Cash Is King: Assessing the Financial Performance of Green Buildings.”

Another factor is the reality that architects and mechanical are understanding that mechanical systems can be an enhancement to the productivity of any housed enterprise. This is becoming more and more of a consideration as new buildings are designed and older ones retrofitted.

If a prospective tenant for that newly retrofitted office building understands that the target building will have spaces that are not only efficient to operate but will feature a potential return based on productivity (even circumstantially), the lease negotiation is likely to be more favorable to the building’s operator.

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