ROI vs. NOI: Why should CRE invest in building automation?

Tenants care about the ROI of building automation while building owners are primarily concerned with the NOI that their buildings generate. A key question facing the industry is whether these objectives are complementary or conflicting.

At a simplistic level, Return on Investment (ROI) refers to the time an investment takes to generate positive returns. Net Operating Income (NOI), on the other hand, refers to the amount of money that an asset generates, less expenses, of course. Within the context of in-building connectivity investments, these concepts would seem to go hand-in-hand. Consider the following:

Companies want to save OpEx. Building automation helps to cut energy bills. Saving OpEx helps to support the ROI of investing in building automation.
Building owners want to increase rents. Tenants will pay a premium for value. OpEx saving automation features and/or robust in-building connectivity can be marketed as premium features.
Ergo, building automation saves OpEx, which drives value for tenants, that allows building owners to charge more. This increases NOI.

Win-win, right? Not so fast.

As can be seen in this panel from InBuildingTech.com’s launch event, there are plenty of examples of building owners investing in in-building connectivity solutions as a way of keeping their buildings on the cutting edge of technology, or to help their buildings comply with energy conservation regulations. However, there are also plenty of building owners that do not view the world this way. Far too many commercial real estate types view their role as to keep the grounds neat, and the walls painted so as to rent their space. But, investments in DAS infrastructure or building automation systems? Alas, for many commercial building owners, a tenant’s needs to conserve energy costs, or provide a satisfying BYOD experience for employees are that tenant’s problem to solve.

So, the question becomes, without a clear link between building NOI and the ROI of in-building connectivity and/or building automation systems, will building owners ever see the proverbial light?

One hand washes the other

In a metrics driven world, where managers are measured by spreadsheets and trend lines, it is completely understandable why property managers that are judged by percentage points of NOI have a hard time justifying investments in solutions that do not have a direct impact on NOI performance. At the same time, the world is changing. Terms such as Industry 4.0, IoT, BYOD, and digital transformation are real business issues that companies of all size, in every industry are increasingly facing as daily management considerations.

These companies require office space that will accommodate these needs. In turn, these companies will shy away from buildings that don’t make their needs a priority. In many cases, tenants are willing to work with building owners to find creative solutions to paying for building automation and/or connectivity solutions. However, commercial building owners need to understand that the onus is on them to make and/or keep their properties competitive.

Afterall, the simplest statement in the in-building connectivity theorem might just be: Zero tenants = Zero NOI.

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