Deployment case study: boosting energy performance and occupier comfort with Demand Logic
Founded in 2007, Demand Logic is a building services software-as-a-service (SaaS) solution which monitors building spaces and plant machinery for opportunities to reduce energy consumption, improve occupier comfort, and inform maintenance schedules — all of which impact net operating income. As an established player in the European property technology ecosystem, Demand Logic boasts clients such as GPE, Grosvenor, BNP Paribas, Legal & General, Knight Frank, JLL and many others. This case study details Demand Logic’s strategic context and origins; its relationship with Grosvenor as a supplier, and later, a portfolio company of Grosvenor; and transferrable PropTech deployment insights from customers of Demand Logic.
· The construction, operation and occupation of residential and non-residential buildings is responsible for approximately 38 percent of global energy demand. A large proportion of this energy is wasted.
· Demand Logic differentiate themselves through their reputation for a superior product over competitors, and ideating solutions to challenges which affected the proportion of buildings within a portfolio that could deploy the product. For assets without a BMS, IoT sensors were installed.
· Grosvenor’s deployment of Demand Logic was not all smooth sailing. It required each party to come back to the table, address pain points and recalibrate.
· At 134 Edmund Street, Birmingham, installation of Demand Logic resulted in up to a £100,000 annual energy saving.
· Like many B2B software, there are a number of users and/or stakeholders that Demand Logic needed to achieve buy-in for a successful deployment. Demand Logic’s customer is the building owner, but facilities managers, who are often third-party contractors, are also essential to the success of the deployment. This can be difficult, because Demand Logic can draw attention to a facilities manager’s performance.
· The success of some software products is measured by the volume of periodic use and unique users (product stickiness). It is argued by GPE’s James Pellatt that this is not a useful metric for Demand Logic, because a key benefit is the fact that only three GPE employees are required to use it regularly.
· For some early target customers of Demand Logic, a 30 percent energy saving was not enough of a pain point to prompt action. Instead, Demand Logic found “occupier comfort” and “sustainability credentials” to be more effective drivers of behaviour, and adjusted their messaging accordingly. This has changed over time.
ENERGY CONSUMPTION IN BUILDINGS
Combined, residential and non-residential buildings account for 30 percent of global energy demand. In addition, construction and building materials account for approximately eight percent of global energy demand. No other sector, including transport, is responsible for more energy consumption than the construction and occupation of buildings. The unfortunate reality is that a lot of this energy is not put to good use. If, for example, energy is generated from the burning of fossil fuels, less than 40 percent of this energy reaches the grid, with the remainder lost to heat and other forms of waste energy. Further energy is then lost through transmission and distribution, before eventually reaching its end use.
Once energy has reached its end use, there are further inefficiencies. Nearly 80 percent of UK households report leaving heating on when not in the home, and more than half leave lights on when not in a room. In the United States, an estimated 30 percent of energy consumed in commercial buildings is wasted. In mid-2022, energy inefficiencies weighed more heavily as global economic forces led to inflationary environments in many economies. Dubbed “the cost-of-living crisis”, this period has featured skyrocketing energy prices and renewed discussions about energy poverty. By 2022, the average energy price for non-domestic consumers in the UK reached approximately double the 2019 figure (see Figure 1).
THE ORIGINS OF DEMAND LOGIC
Founded in 2007, initially as a commitment among co-founders Mike Darby, Joe Short, Dan Mauger and Nils Tödtmann, Demand Logic got started in earnest two years later in 2009. Having worked in the facilities management and building services sectors since the 1990s, Darby had first-hand experience of the early digitalisation of buildings (including the advent of building automation systems).
With the emergence of building management systems (BMS), Darby saw an opportunity for transparency, but also an increase in the level of complexity of how buildings are operated. Initially, in order to facilitate transparency from the data available within these systems, a manual data entry process was required. This also made the building’s variables static — an operator couldn’t see how many variables changed with the variation of time or other inputs (such as machinery settings). Darby went to his friend Mauger with this problem, who then introduced Short, who himself introduced Tödtmann to round out the founding team.
The co-founders identified a gap between the world of power grid demand response and BMS. Darby cites (i) aligned ambitions among the founding team, as well as (ii) skills which were diverse enough to deliver unique value while overlapping enough to work together, as key factors that helped start on the right foot.
GROSVENOR PROPERTY UK AND DEMAND LOGIC
Grosvenor is an international organisation whose activities span urban property, food and agtech, rural estate management and support for philanthropic initiatives. The heritage of their UK property business can be traced back over 340 years, and today its heartland remains in London’s West End, where they support circa-1,000 businesses and tens of thousands of residents and workers each day. They also invest in, create, and manage sustainable neighbourhoods in Liverpool and across England.
Innovation at Grosvenor Property UK is headed up by Innovation Director, Andy Doyle. His team includes Sebastien Herren who is Head of Venture Investment and leads their direct investments in technology start-ups.
INTRODUCTION AND PILOT
Grosvenor Property UK and Demand Logic were introduced in 2018. The challenge facing Demand Logic was product differentiation, with Grosvenor Property UK and others perceiving the energy optimisation market as crowded. Doyle cited market feedback and industry relationships as Demand Logic’s differentiator. In his words, “many consider that Demand Logic is the leading technical solution out there”.
At the time, Grosvenor also considered Demand Logic as being mostly relevant to assets large enough to have a building management system (BMS). The problem? Grosvenor is better known for the opposite: low-rise heritage properties in high-end neighbourhoods. A limited proportion of the Grosvenor portfolio had a BMS — fewer than 20 of their 450 buildings. Over the first one-to-two years of the commercial relationship, Demand Logic was piloted in three of Grosvenor’s larger buildings. According to Mike Darby, the deployment wasn’t smooth sailing in the early stages.
“The pilot produced technically positive results, but the new insight and ways of working were not translating to tangible benefits for the Grosvenor team. We had not agreed a clear path for process change, and how insights from Demand Logic might become part of day-to-day operations for the facilities management team. Just as it looked like we might’ve parted company and branded the pilot a failure, we sat down together and had a closer look at the platform and how it could benefit day-to-day building management. This made it clearer where the blockers existed in the process. From there, we made some structural reorganisation of the roles and responsibilities of the relationship and it worked brilliantly”.
- Mike Darby, Demand Logic
PORTFOLIO DEPLOYMENT
In order to be relevant to a wider proportion of Grosvenor’s portfolio, Demand Logic proposed a solution combining IoT sensors feeding data to their unique software platform to provide actionable insights in smaller units without a BMS and Grosvenor compiled a list of approximately 50 properties where this would be relevant. A trial was commenced on five of Grosvenor Property UK’s smaller commercial properties around September 2021. At this time, negotiations also began for Grosvenor to make a direct investment in Demand Logic. By the time of the investment in June 2022, Demand Logic’s sensor-enabled solution had been rolled out in 11 of Grosvenor’s buildings. Grosvenor expects the rollout to be completed by the end of 2023.
ROI AND INSTALLATION FEASIBILITY
Demand Logic’s pricing is relatively straightforward. The software is marketed with a software-as-a-service (SaaS) subscription model in proportion to a building’s floor space. For buildings which require hardware (such as sensors), an installation fee is incurred. Hardware installation has become more straightforward as internet-of-things combines with cloud computing and miniaturisation to enable “wireless sensors the size of a scrabble piece” instead of “cumbersome pieces of hardware which need to be hard wired into the system”, according to Mike Darby. Contingent on any unforeseen or unique needs of the customer, this allows for a reasonably accurate estimation of the cost of deploying Demand Logic’s solution in a building before obtaining a formal quote.
Grosvenor’s choice of which buildings to prioritise is determined by an asset-level cost-benefit analysis, plus consideration of their level of control over access and management, the building’s energy intensity, as well as the building’s usage (e.g. office, retail, mixed, etc). Darby states that “engaged customers can see benefits within as little as two weeks after deploying Demand Logic”, meaning the feedback loop is shortened. Previous Pi Labs research identified that “some innovation adopters also challenged the notion that PropTech could probably save costs…”. An inability for some products to offer a means of quantifying return on investment makes successful deployments difficult to prove. Therefore, Demand Logic’s ability to do so in a matter of weeks is a strong differentiator against some other classes of PropTech products.
134 EDMUND STREET DEPLOYMENT
In July 2023, Grosvenor’s £35 million regional office refurbishment programme was announced — billed as a transformation of 500,000 square feet of space into low-carbon workspaces. Its most extensive refurbishment is at 134 Edmund Street, Birmingham — a pre-1964 heritage office building. Demand Logic was deployed on this project — gathering data from over 4,300 points of reference around the building. Variables ranged from internal environmental temperature to finer details of each air conditioning unit, boilers, refrigeration systems, pumping and ventilation systems. Demand Logic identified a common inefficiency in building services operations — that a lot of the plant was running continuously and unseasonally (e.g. cooling systems running in winter — usually a result of “firefighting” facilities managers responding to occupier requests). As a result of the deployment, chillers and pumps within the building are now running in accordance with demand, which has saved up to £100,000 in annual energy costs.
CREATING CUSTOMER BUY-IN
When it comes to achieving buy-in from the right people within customers’ organisations, one challenge for Demand Logic is that it depends on what type of company it is. In the case of Grosvenor, Demand Logic needed to achieve buy-in from both the customer’s operations team, as well as the third-party organisation contracted to manage and deliver buildings’ facilities management function. In effect, this means having to achieve two sales for the one commercial relationship. In addition, achieving buy-in from facilities management companies was historically difficult for companies like Demand Logic in some situations. This is because of a less flattering way of framing the product as a means of monitoring the work of facilities managers. In one scenario for an unnamed customer, for example, Demand Logic identified that planned maintenance within a building was not being completed. An alternative framing is that Demand Logic is a useful tool for facilities managers to reduce the level of corrective maintenance undertaken due to the product’s ability to quickly identify abnormalities and notify facilities managers. By 2023, Demand Logic was being used as a tool by facilities managers to quantify and showcase their superior service.
CREATING A CULTURE OF INNOVATION AT GROSVENOR
“Culture” and “innovation” are words frequently discussed in tandem, in particular in the European PropTech ecosystem. In 2021, Andy Doyle shared his thoughts on innovation at Grosvenor — albeit a 340-year-old company, pioneering change has been foundational to the company’s journey. In order to empower employees’ contribution to innovation, Grosvenor launched “Future+”, delegating budgets to teams and establishing employee recognition models to incentivise innovative behaviours. The result was the company’s first hackathon, as well as a series of technology trials and deployments in energy consumption, augmented reality and space-as-a-service. Doyle advocates accepting that failure is a part of this learning process, and such setbacks can be contextualised with a longer-term perspective. This speaks to the “fail fast” mantra of the Silicon Valley psyche — referring to the iterative process of incremental learning and development.
GROSVENOR’S DECISION TO INVEST IN DEMAND LOGIC
In 2021, Grosvenor appointed Sebastien Herren as GPUK’s inaugural Head of Venture Investment — responsible for leading strategic investments into early-stage companies from late-seed to series A. In September 2021, talks began for Grosvenor to make a direct investment in Demand Logic — representing the entity’s first such investment. Grosvenor Property UK is a strategic investor that only invests in products or solutions with a validated use case for its portfolio. This means that trials and positive internal feedback from teams/end users plays a critical part in their due diligence process.
Grosvenor’s motive for making direct investments is (i) the ability to access and adopt innovative solutions; (ii) deliver a strong financial return; (iii) accelerate the company’s transition to net zero; and (iv) developing new skills and knowledge through the relationships, which in turn aims at further driving a culture of innovation. Following this thesis, Grosvenor has since invested in Pupil, Qflow and Commonplace. Alongside direct investment, Grosvenor views indirect investment through venture capital funds as a complimentary approach to their established direct investment method, and the firm is currently exploring this strategy.
CLIENT SUPPORT, PRODUCT DEVELOPMENT AND SALES
Input from Grosvenor that led to Demand Logic’s deployment of sensors in relevant buildings served the purpose of significantly increasing Demand Logic’s total addressable market (TAM). However, the fragmented nature of building management and Demand Logic’s earlier difficulties in navigating it, serve as a useful lesson in proactively managing communication channels and buy-in across all relevant stakeholders (a feat easier said than done).
This means clearly defining roles, responsibilities, and success metrics upfront; understanding how a product is being used by the customer; and the evolution of this use over time. These initiatives can be neglected when sales teams are overly anxious to achieve pilots and deployments without creating added layers of complexity to a negotiation.
When it comes to sales lead time, Demand Logic is at the mercy of a building’s service charge anniversary in some situations. This has resulted in a significant variation in sales lead time — where one contract could take a matter of hours whereas another could take 11 months. According to Mike Darby, the approximate average falls somewhere around three months. The complexity and lead time for contracts are often influenced by the customer’s size. As a general rule, Demand Logic has found smaller companies to be more responsive.
GPE AND PRODUCT STICKINESS
GPE is a multi-award-winning FTSE 250 property investment and development company owning around £2.5 billion of office, retail and residential space in central London. Their portfolio comprises 44 properties totalling 2.6 million square feet, with a development programme totalling 1.5 million square feet, 40 percent of the existing portfolio. GPE is perceived at the forefront of built world innovation in the UK, Europe and globally — having set sustainability briefs as early as 2010 and assigning the firm’s Head of Projects, James Pellatt, to lead the group’s innovation strategy as Director of Innovation from January 2018. As part of this strategy, GPE began working with Demand Logic in 2022.
Demand Logic was well suited to the firm’s Hanover Square development — where over 10,000 datapoints are collected with the solution — flagging inefficiencies for the maintenance and facilities staff. It is also offering GPE feedback on building usage and efficiency trends. Demand Logic is being deployed in 20 GPE assets — spanning 1,000,000 square feet. Over Pellatt’s career working with technology solutions and other innovations, he has identified what he views as a misunderstood emphasis on product stickiness — that is, the frequency and duration of use of a product, as well as the quantity of end users. According to Pellatt, Demand Logic serves as a useful example of this:
“A mistake that I often see is the assumption that everyone within a firm or team needs to be using a technology solution for it to be successful. This would be correct if the solution relies on network effects (like social media or a communication platform). But in other cases, only one or two people within a firm may need to use it for a deployment to be successful. In the case of Demand Logic, only three of our staff use it on a regular basis, but an additional 30 people outside our organisation use it (e.g. our contracted maintenance teams and services consultants). The priority should be solving the problem you set out to solve in the most productive way. If this only requires three users from within our organisation, then all the better.”
- James Pellatt, GPE
KNOWING YOUR CUSTOMER
Although Demand Logic quantifiably saves costs by reducing energy waste in buildings, it was relatively early in the company’s journey when the team realised that this saving alone wasn’t enough of a pain point to prompt action within some prospective consumers. For non-domestic energy consumers, spend on energy can be as little as 1 percent of total expenditure, meaning a 30 percent saving would only create a 0.3 percent improvement in expenditure. In the earlier years, Demand Logic also found that the sustainability managers, who they were often liaising with, possessed little internal influence within their organisations. This meant that regardless of their level of buy-in, they were unable to execute contracts without lengthy timelines.
On the other hand, installing Demand Logic also influences the comfort of occupiers and their productivity. This turned out to be a much stronger selling point for the product until energy cost savings and sustainability credentials of buildings became more significant in the late-2010s and early-2020s. Threats posed to asset value from “stranded asset risk” of environmental underperformance adds another dimension to Demand Logic’s value in the eyes of customers. This has increased the sense of urgency among asset managers, so it is unsurprising that asset managers are Demand Logic’s largest customer segment as of 2023.
THE FUTURE OF DEMAND LOGIC
Europe has led the way in sustainability regulation, innovation and investment, but North America and other global regions are steadily catching up. It is for this reason that the Demand Logic team is setting sights on overseas markets. In order to do so, the firm will likely raise their next funding round in 2024. International outreach is already well underway, with Demand Logic exhibiting at international real estate conferences and starting early conversations with prospective clients. With an increased emphasis on the environmental performance of buildings, Demand Logic expects demand for their product to grow from a solely cost or revenue-based deployment to also include reputation management and regulatory alignment at an increased weighting.
This case study forms a chapter in Pi Labs’ upcoming white paper Technology Deployment in the Built World. Join our mailing list in order to receive it in your inbox upon release. You may also like to download PropTech Deployment and Implementation: Volume 1 which includes case studies on LandTech, Plentific, Adeptmind and OfficeRnD.
