Commercial real estate seldom seems like a zero-sum game. There’s nothing stopping a class A office on one side of the street and a class A office on the other side of the street from both succeeding and turning a great profit, if the demand is there. If there could be only one big winner per market, who would fork over the hundreds of millions it takes to develop big projects?
Many times, new product competition is zero sum: one party wins and the other loses. Think about VHS versus Betamax, video streaming versus rental stores, or iPod versus Zune. There’s also the example of Blu-ray versus HD DVD, which eventually led to Sony’s success with Blu-ray, and Toshiba’s loss of around $1 billion while trying to get HD DVD to catch on.
Commercial real estate is seldom the same way. There’s nothing stopping a new office on one side of the street and a new office on the other side of the street from both succeeding and turning a great profit, if the demand is there.
While most property companies don’t have to deal with such life or death situations when investing in a new building, the ecosystems they invest in sometimes do face this concern. Tying too much to the wrong proprietary systems can lead to trouble for property owners. More than individual technologies, though, the certifications that assess and grade the attainment of properties across various categories also faces this risk.
Right now, we’re at a dynamic time for property certifications. The biggest, like LEED and BREEAM on the sustainability side, keep on getting bigger. Meanwhile, both of the big categories of sustainability and wellness certifications are seeing more and more new, upstart certifications get into the market too.
At the same time, we’ve also seen the arrival of a new type of certification: the smart building certification, aimed at assessing the effectiveness of the technology, connectivity, and networked systems within commercial properties. As we discuss in our newest report, which focuses exclusively on these certifications, one of the biggest advantages of smart building certifications is their ability to serve as a goalpost for owners to hit with their own tech investments. Few and far between is the real estate owner who is also a true expert in building technology. For these owners, building tech certifications can be a useful, time-saving investment to provide peace of mind that they are on the right track.
All of this growth and change within the world of certifications is exciting, but it comes with risks. There is a wide variety of various certifications out there now, and there is no guarantee that all of the ones available today will be available tomorrow. This would not be a problem if it were easy to transfer attainment of one certification to completion of the requirements for another. But while some certifications do award points for properties that complete other certifications, like SPIRE Smart Building with LEED and others, this is never a one-to-one relationship.
Property companies that commit to one type of certification, only to see that certification later close up shop and disappear, will be faced with a tough situation. Not only will all the costs of the initial certification be gone to the wind, but they will have to pay for whatever subsequent certification they pursue, as well, or face the disappointment of losing certified status altogether.
Even if costs to recertify are low, property owners will have an even bigger issue to face. If the first certification pursued required specific investments in certain technologies or policies that would not otherwise have been pursued, and the replacement certification does not require those same investments, or even worse, requires completely new ones, the overall bill to certify will continue to mount.
Don’t get me wrong, this is not a problem that is widespread…yet. We aren’t yet seeing many certifiers go out of business, but with multiple players in each certification vertical, some of which possess enormous first-mover advantages, it is probably only a matter of time.
This doesn’t mean that owners should skip certifying their properties for sustainability, wellness, or technology. But it does mean that owners should consider a backup plan when investing time and money into a certification, particularly if it is a smaller one. Regardless of the focus area, thinking of a backup certification “escape hatch” will not be an effort poorly spent. If tech certifications provide owners with peace of mind that they are on the right track for sustainability, wellness, and technology, why not be thorough?
Consolidation, or at least some closures, within the certification field wouldn’t exactly be a curveball for the business. But like commercial real estate itself, the field of certifications doesn’t need to be a zero sum game either. If, like I said earlier, one of the biggest values of certifications is their ability to guide owners to strong levels of attainment in sustainability, wellness, and tech, perhaps owners should get the jump early and pursue multiple different certifications from day 1. This would prepare owners for possible disruption amongst their certifiers, while helping establish broader subject area competencies, and consequently better properties at the end of the day. Certifications shouldn’t be viewed as a binary, certified versus not. They should be viewed as tools on the path to continual performance improvement.