Smarter capital planning in commercial property operations

March 20, 2024

In today's challenging macro climate, prudent decisions about capital expenditures in commercial buildings are paramount, and smarter capital planning has become a necessity for real estate investment trusts (REITs) and property owners. 

As the intersection of innovation and insight evolves, building analytics has proven to be far more than just a tool—it’s the bridge to optimised capex through tangible extensions of the plant and equipment lifecycle.

In this post, we’ll explore capex planning in the context of commercial real estate, the benefits of more targeted planning, and specific examples of how to execute in the upcoming year and beyond.

Capex planning challenges for commercial real estate

For commercial property owners and operators, capital planning is rife with complex challenges, ranging from the high worth of plant and equipment through to ensuring sustainability is considered when upgrading and asset performance targets associated with Net Zero objectives are met.

Of course, the commercial real estate industry also faces a wider network of hurdles, including building occupancy, high vacancy rates in some parts, and the growing performance gap between promised and actual efficiency.

These challenges, which have a direct impact on cash flow, can be mitigated in part by rerouting capex and planning for lower spend over a longer period. Research has shown that properties with more efficient capital allocation tend to generate higher rates of return than the alternative, so close attention to capex planning and spending is a net benefit to property owners in both the near and long term.

How analytics is revolutionising capex management

Boosting equipment longevity

Building analytics tools provide proactive and meaningful data that can be used to optimise equipment performance and lifespan, prevent inefficient operation, and reduce overall capex. Building analytics empowers you to dive deep into the intricate layers of equipment performance data. By understanding subtle operational patterns and anomalies, operations teams can calibrate and adjust in real time, ensuring that equipment runs within optimal parameters and maximises its operational capacity. 

With fault identification that details the location, root cause, cost impact, and solution for each fault, analytics speeds up the time to resolution while reducing the need for on-site expertise to pinpoint and address problems. Simple dashboards put this knowledge in the hands of asset owners and facility managers, empowering them to make faster and better decisions about responding to alerts, prioritising and assigning tasks, and streamlining maintenance schedules and costs.

Backed by data-driven insights, even small improvements to equipment performance and operation can dramatically increase equipment lifespan over time, turning assumed imminent replacements into deferred expenses.

Avoiding budgetary surprises

A cornerstone of smarter capital planning is the ability to sidestep budgetary shocks. Sudden equipment failures can have severe financial implications, often leading to unexpected expenses that can destabilise budget planning. 

Yet, traditional maintenance schedules have made missed issues and misaligned objectives all too common. While contractors inspect fully functional equipment, they may miss other items that need attention. These issues could remain unaddressed for months, compromising system efficiency and potentially escalating to more severe problems. 

Data-driven analytics can flag and address potential issues long before they escalate into critical failures. Instead of bracing for unexpected equipment replacement costs—which by their nature can’t be foreseen with precision—analytics offers the comfort of foresight, enabling proactive interventions and significantly reducing unplanned expenditures.

Proactively identifying and resolving faults not only extends the lifespan of expensive plant and equipment but also defers unnecessary capex upgrades. 

Data-driven decision-making

Relying on actual performance data rather than third-party opinions or arbitrary schedules means making decisions based on actual conditions, leading to smarter capex planning grounded in objective data.

Here are just a few of the ways data-driven decisions can transform your capital planning:

  • Maintenance schedules: By leveraging performance data, maintenance schedules can be optimised to focus on areas that truly need attention rather than adhering to a rigid—and often unnecessary—time-based schedule. Existing equipment that continues to perform well can be serviced based on real-time measurements rather than assumptions.
  • Capex: Analytics enable smarter capex decisions by flagging equipment that has truly reached the end of its lifecycle. 
  • Strategy: With real-time insights into asset performance, REITs and property managers can make informed decisions that align with their long-term strategic goals for each asset and portfolio.

Improving energy efficiency

It’s well-known that commercial properties are major contributors to global greenhouse gas emissions, with energy consumption being the driving factor. Property owners and managers can realise immediate cost savings by strategically optimising energy consumption. This directly impacts net operating income (NOI), decreasing operational expenses without undermining tenant satisfaction.

Efficient equipment isn't just about longevity; it's about how well it performs during its lifecycle. Advanced analytics can highlight areas of inefficiency in real time, from minor energy drifts to sub-optimal operating conditions. Addressing these issues promptly can dramatically reduce energy consumption, sometimes by over 30%.

Building analytics prioritises the resolution of faults that are the biggest contributors to energy waste, improving overall sustainability and reducing operational spend. By analysing live and historical data, on-site teams can predict and manage peak demand, ensuring the most efficient use of energy to deliver optimal thermal comfort levels at all times.

Energy efficiency is also a direct route to enhancing asset value. Efficient buildings earn higher environmental ratings, making them more appealing to prospective tenants and ensuring higher rental returns. 

Enhancing tenant satisfaction

In a market predicted experiencing a reset in values, tenant satisfaction is more important than ever. High tenant satisfaction is a leading metric for lease renewals and directly contributes to building occupancy, NOI, and asset value, making it a requirement for building owners who want to ensure high asset performance.

Analytics tools like CIM's PEAK Platform benefit commercial tenants by minimising disruption, improving thermal comfort, raising sustainability metrics, boosting productivity, and improving air quality. The resulting high tenant satisfaction has a net positive impact on the building's overall performance.

By improving key markers such as indoor air quality and thermal comfort using existing resources, tenant satisfaction can be improved without the need for major capex investment. 

How PEAK facilitates smarter capital planning for QIC

QIC leverages CIM's PEAK Platform across its vast network of retail centres. At Westpoint shopping centre, five of six chillers were due for replacement by 2020 per equipment age. PEAK facilitated a performance analysis and found that only one required immediate upgrade. Control strategies were updated to allow for optimum performance of the existing chillers, resulting in a 13.5% savings on C/W consumption. Five existing chillers are now planned for upgrade in 2025, delivering a five-year lifecycle extension.

QIC has leveraged PEAK’s insights in a broad capital planning initiative to evaluate the performance of critical infrastructure like chillers and boilers through a multi-phase approach encompassing audits, upgrade recommendations, support, and continuous monitoring. As the above example demonstrates, this proactive approach ensures more targeted investment, enhances the efficiency of existing plant and equipment, and reduces the environmental footprint and operational costs associated with these critical systems.

Using a thorough benchmarking exercise, QIC evaluates costly assets based on various parameters such as age, runtime, capacity, energy consumption, downtime, maintenance costs, coefficient of performance, and more. This granular analysis facilitates informed decision-making regarding which capital items require replacement, the optimal choices for such upgrades, expected payback periods, and actionable insights to optimise existing assets for upgrade deferral.

To learn how CIM can help stretch your capex further, watch a demo of our PEAK platform in action.

Arghya Sen
March 20, 2024