Digital infrastructure, ESG and property value

Commercial real estate has for years been assessed on a fixed set of factors: location, energy performance, technical condition, flexibility and the quality of the tenants. These factors remain important. Yet the perspective through which investors, owners and users view a building is shifting. Where sustainability gained a fixed place in valuation in recent years, a new dimension is now emerging.

That dimension is the digital quality of a building. Modern organisations look not only at square metres and appearance, but also at internet quality, digital reliability and the ability to run smart applications. A building that is physically in good shape but lags behind digitally increasingly fails to meet what users expect.

This raises a central question for everyone working in real estate. Can a building be future-proof without a future-proof digital infrastructure? This article outlines how digital readiness relates to ESG, lettability and the broader future value of offices.

ESG real estate: more than energy and sustainability

ESG stands for Environmental, Social and Governance and plays a growing role in real estate decision-making and reporting. Much attention goes to the first pillar, but the other two relate directly to digital infrastructure.

Environmental

The environmental pillar has traditionally focused on energy consumption, CO2 reduction and efficient installations. Digital infrastructure contributes to this indirectly. Smart building management, monitoring and optimisation are only possible if the underlying connectivity and networks are in order. Without reliable data, there is little to steer on when it comes to energy.

Social

The social pillar concerns the people who use the building. An office needs to offer a healthy and productive working environment, and that now requires digital support. Hybrid working, remote collaboration and a pleasant user experience depend on reliable facilities. A building without a stable digital foundation limits the possibilities of the organisations located there.

Governance

The governance pillar relates to manageability, transparency and risk management. This is where cybersecurity in real estate comes into view, among other things. Digital infrastructure is increasingly becoming part of professional building management, since digital risks and their management cannot be separated from the quality of the building itself.

A building that is not digitally prepared may soon become outdated just as quickly as a property that lags behind on energy performance.

Why tenants view office space differently

User expectations have shifted in recent years. A tenant no longer looks solely at the number of square metres, the location and the appearance of a property. The practical question that accompanies this is whether the organisation can get to work right away.

Questions increasingly heard include: is the internet provision reliable, does the building support modern technology, and are the digital systems prepared for what is coming? For many organisations, connectivity is now just as decisive as the number of workstations. It is no coincidence that one of the first questions asked by modern tenants and buyers is what internet connection is in place.

The digital quality of a building thus influences its appeal to prospective tenants. Those who have insight into this beforehand can better assess whether a space fits their own needs. For tenants looking to orient themselves, it is useful to know what to pay attention to before a lease is signed.

Digital infrastructure and lettability

The influence of IT infrastructure on lettability shows itself in several ways. It is not a technical detail, but a factor that can strengthen or limit a building's market position.

• Direct use. A building with a solid digital foundation requires fewer additional investments from tenants. The space is usable more quickly, which lowers the threshold to sign.
• User experience. Reliable connectivity contributes to a better daily working environment and to the satisfaction of employees and visitors.
• Future-proofing. A building prepared for new technology remains attractive for longer and loses relevance less quickly.

The parallel with technical condition is clear. Just as an outdated installation can limit a building's technical value, an outdated digital infrastructure can also affect its market position. For owners who want to get a grip on this, it is worth looking at how digital quality weighs into the value of your property.

From physical property data to digital property data

Real estate is becoming increasingly data-driven. Investors and asset managers look not only at the physical characteristics of a building, but at a wide range of data: energy performance, maintenance, occupancy, market position and user data. This information forms the basis for decisions on acquisition, operation and sale.

Digital infrastructure is becoming a new layer within this whole. Alongside the question of how sustainable a building is comes the question of how digitally prepared it is. That second question has so far been difficult to answer objectively, because there was no unambiguous way to record and compare digital readiness.

This is precisely where the need for a common language arises. Without shared terminology, digital quality remains a topic described differently for each building, which makes comparison difficult. More background on this can be found in the article on the IT-Label and return on yield, acquisition and disposition.

What the IT-Label makes transparent

The IT-Label makes the digital foundation of a building transparent. It is not a certification with legal status, nor a valuation model, but a classification methodology from an independent knowledge collective. Its purpose is insight: showing how a building stands digitally, so that market parties can compare buildings more effectively.

The topics involved include, among others:

• internet facilities and available connections;
• connectivity and its quality;
• network cabling and technical rooms;
• network redundancy and the availability of connections;
• digital facilities and the possibilities for smart building applications.

By organising these aspects into a classification, a picture emerges that goes beyond a loose technical list. If you want to know how the methodology is structured, the page on how the IT-Label works explains this.

The IT-Label as a new layer within property quality

The IT-Label is best understood alongside the instruments the market already knows. Every aspect of building quality now has its own way of being measured and recorded.

• Energy performance is made visible with the energy label.
• Sustainability takes shape through ESG reports and certificates.
• Technical quality is assessed using standards and inspections.
• Digital readiness is made visible with the IT-Label.

The IT-Label does not replace existing standards. It adds a dimension that has so far been missing. The classification ranges from IT1+ PREMIUM for buildings with an extensive digital foundation to IT5 SHELL for properties without any digital infrastructure in place. Each classification describes what is present, without attaching a judgment of good or bad to it. A complete overview can be found at the IT-Label classification from PREMIUM to SHELL.

Why digital quality is becoming part of valuation

The expectation is that buildings will increasingly be assessed on a combination of characteristics: sustainable, healthy, flexible, secure and digitally prepared. None of these factors stand alone, and together they determine how well a building matches demand in the market.

A building that performs excellently on the physical side but lags behind digitally may as a result lose appeal for modern users. This makes digital readiness relevant for everyone in the chain: institutional investors, owners, asset managers, developers, tenants and the brokers and advisors who support them.

This is emphatically not a matter of digital quality versus sustainability. Both are foundations of modern real estate, and both require insight before decisions are made. Where the energy label provides that insight for energy, the IT-Label does so for the digital layer.

Concrete next step

Would you like to know how your own portfolio or a specific building is doing in terms of digital readiness? Start by exploring the basic principles and the role the IT-Label can play within your property data. The page what is the IT-Label offers a compact starting point, and via the IT-Label for property owners you can see what the methodology means for your situation. This way, you make the digital quality of your property transparent and comparable, as a complement to the indicators you already use.