Over the past year developers of commercial real estate increasingly have come under pressure from telecommunications and building services companies to develop a "smart" office building, one that can provide tenants with a shared telecommunications network, integrated building services and even central in-house computers.
But in the Washington market, at least, it appears that the majority of tenants aren't that interested yet in renting space in a building so artfully wired that a worker could turn on the air conditioning by hitting a program key on his computer terminal.
"I haven't come across a tenant yet that was looking for an intelligent building," said Vernon Knarr, a commerical leasing agent with Coldwell Banker's D.C. office. "We see a lot of interest on the part of developers because they are being inundated by the people selling this equipment, but tenants don't know enough to even ask about it."
Patricia Terry, vice president and manager of the Maryland office of Julien J. Studley, Inc., said that in the Montgomery market demand for intelligent office buildings is also low.
"Most of the tenants own their own phone systems so they are not necessarily interested in a building that would allow them to hook into a central telecommunications system," said Terry. "I know that several developers have looked into building a smart office building but have decided that the guaranteed return on their investment just isn't there yet."
Definitions of what makes a building smart vary as widely as the services that could potentially be offered in buildings in the future. Vendors of the systems, however, think of those services in three basic catagories that are added together only in the most sophisticated buildings.
One the bottom rung are building services, heating and air conditioning, security and electrical systems. The middle rung is the shared telecommunications systems that allow tenants in the building to use a central phone system that routes all long-distance calls over the cheapest available lines, whether they are Sprint's, MCI's or American Telephone & Telegraph's.
Such a system is known as a PBX (private branch exchange), and the newest ones are also able to route data as well as voice between offices, opening up the field to the highest level of service available, which includes interconnecting data processing capabilities between offices and the outside world and special features, such as teleconferencing.
According to MCC Powers, a division of Mark Controls Corp. and one of the intelligent building services vendors, there are only 12 "truly intelligent buildings" in the United States so far. By their definition, truly intelligent are buildings that offer tenants telephone and computer hookups to the central PBX.
Industry analysts say there are over 100 buildings with a shared telecommunications system under construction in the country today, most in real estate markets where there is more space than demand and developers need to give their buildings an extra edge to be competitive.
Washington has only a few intelligent buildings so far, by whatever definition. The Air Rights Complex in Bethesda and Rockville, being built by Eisinger Kilbane & Associates, and the GT Renaissance Centre near Dulles International Airport are the biggest of the handful.
"So far the Washington market is still a good enough market so that this kind of additional service isn't necessary," said Joseph S. Kraemer, a partner with Touche Ross & Co., a Washington firm that offers seminars and consulting services on intelligent buildings.
"Dallas is one of the most mature markets as far as offering intelligent buildings goes," said William Barker, vice president of financial and corporate business development for SBS RealCom, a subsidiary of Satellite Business Systems in McLean. "I wouldn't put a lot of stock in what commercial leasing agents are saying about demand in this area because those of us in the business are still studying and learning about what is available. We haven't really gotten the word out yet."
A survey of smaller local tenants, those that could be expected to be interested in sharing telecommunications and computer services with other companies to cut costs, showed that in the Washington area most office tenants don't even know what an intelligent office building could be.
The survey, done by Touche Ross, found that 76 percent of the more than 200 tenants interviewed had not heard of shared tenant telecommunications.
"These companies have monthly communications costs that ranged from $1,000 to $20,000," said Kraemer. "While we found that 43 percent said they would probably switch to such a system if it would save them 10 percent, there is vast uncertainty out there about what it would do for them and whether it would, over the long run, really be as reliable as the phone company and cost less."
Terry, of Julien Studley, said that the only times the subject has come up between her and tenants looking for space have been when she mentions that such services are becoming available locally. But even then, she said, most tenants feel it is something they don't really need.
"There may be some concern that selling their phone system and changing to a computer system that would be compatible with the one in the building could lock them into space they might outgrow in the future," said Terry. "On the average, tenants in this market move every seven years, usually before they think they will need to. They may be concerned that going with an intelligent building would limit their flexibility."
While there may be little demand for such services today, commercial leasing agents say they do see developers designing buildings that could be upgraded easily in the future to accommodate heavy computers.
Kenneth McVearry, vice president and resident manager for Coldwell Banker's Northern Virginia office, said that such design flexibility includes such upgrades as increased air conditioning capabilities, increased floor loads, higher ceilings on the first floor to accommodate a PBX if one needs to be installed in the future, and central risers that could easily be wired with fibre-optic or other connecting cables.
"Developers are building in extra flexibility, figuring better ways to run the water system, the security system and the heating and air conditioning," said McVearry. "But we aren't seeing them putting in that PBX ."
McVearry and others say that one of the reasons developers may be holding back is because the market is so new that the hardware is still changing rapidly, and many builders are waiting to see which companies will come out on top before investing in an expensive system.
Some of the vendors, such as MCC Powers, are offering services to developers on a joint venture basis, in which the developer and the service provider have an equity interest in the system and control over operation and servicing.
"We've found that developers are very interested in participation because it gives them a cut of the action and control over their building," said Douglas T. Hickey, director of sales for MCC Powers. "We are looking for visionary developers in markets that are able to absorb new space, developers that we can work with on more than one project."
Other companies, however, are offering intelligent building services as a franchise, an arrangement that nets the developer high entrance fees but means that the franchisee controls the quality of the system.
Honeywell Inc., a company selling total intelligence systems from elevators to computers, recently won the contract to install $2.9 million worth of integrated management controls at the GT Renaissance Centre. The center will have 600,000 square feet of office space and a hotel and, according to Julien Studley, is leasing up "with the market, but because their rents are competitive, not because of the sophisticated equipment available." As with most intelligent office buildings, the telecommunications services at the Renaissance Centre are optional, and the costs are added on above the basic rent.
Some developers, including Lincoln Property, have started their own subsidiary companies to build and service intelligent building systems.
"We don't believe that all of these service providers can deliver what they have promised, a little like the cable television companies that promised wonderful things in order to win franchises," said Kraemer, of Touche Ross. "Over the next three years there's going to be a big shakeout, and many developers may be waiting for that to happen before offering contracts."