Smart, high-performance buildings are a small but growing market, largely due to an electrification movement, efforts toward a smarter grid and net-zero building operations. There have never been more inducements than there are today, including state-of-the-art technologies and federal, state and other financial incentives.

“I think we’re seeing a market shift, a better understanding of what it means to make a building higher performing at lower energy use,” said Marshall Duer-Balkind, director of policy programs for the Institute of Market Transformation, Washington, D.C. 

“It used to be I could manage my buildings’ energy use by 5% and wave my flag. Now, we’re seeing drivers from both policy and financial markets working to draw down building energy use 30%–40% or more, and from a carbon standpoint reduction, to net zero. It’s doable, and we are seeing it being done cost effectively. That is a fundamental shift, but it requires leveraging every possible opportunity on the table and that includes smart buildings,” he said.

Fortune Business Insights, a global competitive intelligence and market research firm based in Pune, India, last updated its global outlook report, “Smart Building Market Size, Share & Industry Analysis …” in August 2024. The report estimates the market, which was valued at $96.96 billion in 2023, will grow from $117.42 billion in 2024 to $568.02 billion by 2032. That represents a compound annual growth rate of 21.8%. 

Furthermore, it reported that in 2023, North America accounted for a market value of $39.08 billion. Fortune expects this region to continue to lead.

Julia Eagles, IMT’s associate director of utility and regulatory strategy, said her organization tends to use “high performance” for buildings optimized to reduce resource consumption, minimize waste and provide a healthy and productive indoor environment for occupants. Passive technologies are sometimes used to reach those objectives. 

“Smart buildings, I would say, are more focused on the kind of structures that generally incorporate various advanced technologies to achieve operational efficiency, occupant comfort and overall functionality,” she said.

Eagles said electrical contractors might work with technologies such as building automation and management systems, including remote monitoring and, of course, lighting systems that tie into building control. 

“We also see technology providing predictive maintenance to improve the longevity of different equipment within the building,” she said.

According to Constantin Ginet, who serves as global head of energy performance services for Siemens Corp.’s Smart Infrastructure division, Atlanta, “Smart buildings connect the real world with the digital world. It’s the connectivity of different building automation and digital systems that are increasingly connecting the user to the building.”

“It’s also about collecting data and structuring data. And finally, this is about smart decisions on how to operate those assets, how to operate the building itself so that it is best optimized from an operations, comfort, and sustainability perspective, including maximizing energy efficiency and minimizing carbon dioxide,” he said. 

“There is a clear momentum right now in the market to move towards smart buildings,” Ginet said. He cited factors such as batteries and photovoltaic cells becoming cheaper and the increase in “grid edge” connected technologies such as distributed storage and generation, smart meters, smart appliances and electric vehicles.

Buildings, net zero and the grid

Another force driving smart building adoption is the U.S. energy goal of net-zero emissions by 2050, and the preparatory 2030 target to reduce greenhouse gases by 50% from peak emissions levels.

Ralph DiNola was CEO for the New Buildings Institute, Portland, Ore., at the time of interview. NBI‘s Getting to Zero database tracks net-zero building adoption.

“Buildings represent 37%–40% of the carbon emissions in the U.S. and use 75% of the power on the grid,” DiNola said. “They have a central role to play in how we decarbonize the grid. Buildings can also serve as a nexus for electrification, including transportation [e.g., bidirectional EV charging]. We believe buildings will need to be smart and connected.

It used to be I could manage my buildings’ energy use by 5% and wave my flag. Now we’re seeing drivers from both policy and financial markets working to draw down building energy use 30%–40% or more, and from a carbon standpoint reduction to net zero. It’s doable, and we are seeing it being done cost effectively.”

—Marshall Duer-Balkind, Institute for Market Transformation

“The goals of net zero, the embrace of net zero, the measure of net zero will drive interest in smart buildings. It’s one more pathway,” DiNola said. “There’s never been a better time to make this market transformation happen. We’ve never had as much support.”

As one example, DiNola referenced the Inflation Reduction Act (IRA). The IRA features grants for states or local governments to adopt updated building energy codes, including net-zero energy. He also brought up organizations like the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE), Peachtree Corners, Ga., which issued ANSI/ASHRAE Standard 228-2023, Standard Method of Evaluating Zero Net Energy and Zero Net Carbon Building Performance. This new standard sets requirements for evaluating whether a building or group of buildings meets a definition of “zero net energy” or “zero net carbon” during building operation.

In addition, the American Institute of Architects, Washington, D.C., created “The AIA 2030 Commitment,” a climate strategy that gives architects a set of standards and goals for reaching net-zero emissions in the built environment by 2030. IMT, too, leads out the Energy-Efficient Codes Coalition, committed to improving the energy efficiency of the International Energy Conservation Code. 

NBI has several initiatives that DiNola called critical components of supporting smart buildings, including efforts to decarbonize building codes.

NBI and IMT also focus on two-way building and grid interactivity. NBI’s GridOptimal Buildings Initiative aims for effective building-to-grid operation that is measurable and quantifiable. 

Two-way grid interactivity is more than a demand response program, Eagles said. “It’s an automated two-way scenario that would feature a more advanced utility rate design that could yield greater cost savings based on the time of day,” she said. “A building with a good building management system could participate in two-way grid interactivity with the ability to adjust or modify load based on price signals.”

“Renewable energy integration is an emerging piece that may mean on-site, but often off-site renewable generation and syncing that up with the building’s usage,” Duer-Balkind said. “All of this represents another flight to quality. The leading building owners want to decarbonize their buildings, get them to be higher performing and smarter.”

Stubborn headwinds

Despite the promising prospects for smart building adoption, higher upfront costs, longer-term payback periods and other variables can serve as a deterrent.

“In the office market we see a reluctance to invest and a suspicion of smart building technologies in their ability to deliver advertised energy savings,” Duer-Balkind said. “It isn’t the tech itself where you see the energy savings, it’s the proper application of it. That means your workforce must be able to capably run it. And that leap, I think, scares people, unfortunately.”

The goals of net zero, the embrace of net zero, the measure of net zero will drive interest in smart buildings. It’s one more pathway.”

—Ralph DiNola, New Buildings Institute

Duer-Balkind shared stories of owners who were convinced to equip their buildings with smart tech only to have it languish, and building engineers who kept the tech “turned off” rather than take the blame if something needed troubleshooting. 

“There is a more specialized expertise to a building operation for smart buildings,” Eagles said. “We need to build a workforce to handle that expertise.”

Ginet emphasized the importance of a true collaborative approach. To get the full benefits of a smart building, you need an ecosystem of partners working together, including the facility manager, installer, other contractors and the tenant, but also financial and technology partners.

And that’s not the only adjustment. Eagles added that owners may be used to narrowly thinking about short-term cost savings, and not all components of smart high-performance buildings are going to provide that outcome.

Ginet believes that owners need a convincing value proposition for smart building investment, a tangible return on investment.

“We’re applying more digital simulation tools that help us to predict outcomes in a very detailed way, which we didn’t have in the past,” he said. “This helps us in assessing reductions in CO₂, maintenance and operational costs. 

“If you’re pitching how smart buildings can improve the health and safety of building occupants, ROIs are trickier but doable,” he said. “In education markets, if you understand how to maintain a healthy distance between students [and] create responsive, improved ventilation, then you also create a better and healthier working environment in the classroom or office. You are making intangibles tangible by taking a cost-driven view … be it sustainability or health and occupant well-being. Currently, the market is not ready to move only on the intangibles, so it’s important to develop use cases to illustrate benefits for a building owner.”

Beyond the office

Offices aren’t the only buildings going smart. Siemens targets several verticals. 

“Healthcare has a lot of energy assets in place already, but they are often poorly utilized,” Ginet said. “Such spaces must be made safe, operate more efficiently, and quickly respond to patients. Another market is the data center, which is a huge consumer of energy. This is not user-centric, but it does need more and more smart cooling systems to protect servers and other IT infrastructure. We are integrating A.I. so these systems … can learn and operate at determined optimization.”

Time will tell, but the smart building market is poised to take off. Keep an eye out for additional supportive advances, such as smart HVAC (e.g., grid-connected heat pump water heaters), smart circuits and open protocols and software for building controls.

stock.adobe.com / Patrick Helmholz