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Commercial Real Estate

Is Green Commercial Real Estate Gold?

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green real estateLet’s start with some really exciting statistics:

  • According to the American Public Transportation Association (APTA), nearly 43% of America’s energy resources are used for transportation.
  • According to the APTA,  for every passenger mile traveled, public transportation emits 95% less carbon monoxide, 92% fewer VOC’s (Volatile Organic Compounds) and almost 50% less carbon dioxide and nitrogen oxides than private vehicles.
  • According to the U.S. Census Bureau, in 2006 an estimated 24% of all workers in the U.S. used alternative forms of transportation, such as carpooling, walking, telecommuting, and public transportation.
  • Using native or adaptive plants typically use less water and chemical fertilizers than non-native or exotic plants.
  • According to the U.S. EPA, storm-water has been identified as a major source of pollution for all types of water bodies in the U.S.
  • According to the U.S. EPA, ambient temperatures in urban areas are artificially increased anywhere from 1-10 degrees compared with surrounding areas.
  • According to the USGBC, heat islands exacerbate air pollution, including smog, and increase cooling requirements, in turn increasing energy demand and emissions.
  • According to the USGBC, light trespass from poorly designed outdoor lighting systems can affect the night sky and nocturnal animals.

Water Efficiency-

  • According to the Energy Information System, water heating in commercial buildings accounts for nearly 15% of building energy use.
  • According to the USGBC, lower potable water use for toilets, showerheads, faucets, and other plumbing fixtures reduces water withdrawn from underground aquifers and from rivers, streams, and other waterbodies that support aquatic ecosystems.

Energy, Environment & Atmosphere

  • According to the US Department of Energy, properly executed O&M programs that target energy efficiency have been shown to save 5%-20% on energy bills without significant capital investments.
  • Chlorofluorocarbons (CFCs) and Hydrofluorocarbons (HCFCs) deplete the ozone layer and cause Global Warming.  Go green and reduce the usage of CFCs and HCFCs.
  • According to the US EPA, Simon Property Group implemented a Web-based tracking tool for energy use.   Between 2004-2005 Simon cut 6.8% of their electricity use compared to 2003 and saved 84,000 metric tons of CO2 emissions (enough electricity to power nearly 10,800 US homes for a year).
  • + 5,000,000 – Combined # of commercial and industrial buildings in the US.
  • $202.3 billion – Combined annual energy costs for US commercial and industrial buildings.
  • 30% – Portion of energy in buildings used inefficiently or unnecessarily.
  • 45% – Combined percentage of US Greenhouse Gas emissions generated by commercial buildings.
  • 10% – Percentage of energy use reduction targeted by the ENERGY STAR Challenge.
  • $20 billion – Amount of money that would be saved if the energy efficiency of commercial and industrial buildings improved by 10%.
  • Buildings represent over 50% of US wealth.
  • Buildings account for:
    • 1/6 of the world’s freshwater withdrawals;
    • 1/4 of its wood harvest;
    • 2/5 of its material and energy flows.

So what do these thrilling statistics tell us? Obliviously many things but for me ,  Simple. The Commercial Real Estate business in general has a HUGE effect on the environment and in my opinion.  Commercial Real Estate Brokers and all people in the Commercial Real Estate related  business should have a HUGE stake in the  “Green  Movement.”  Now, before you think,   I’ve drank from the same cup of Kool-Aid as Al Gore (inconvenient idiot?) or I am about to begin a tutorial on how to hug a tree:  tree-hug

Think again, I am a Commercial Real Estate broker and my pragmatic analytic money making brain thinks that I need to jump full onto this eco-friendly bandwagon, or get run over by it.  If you look at the Commercial Real Estate landscape (that one came naturally) what are the Green things we as Commercial Real Estate people should be aware of?  The first link and best source of information is the USGBC.

The USGBC is one of the most valuable resources of information, for me. Keeping updated news events and most importantly Commercial Real Estate specific education.  Once you have browsed the site the next think you will want to know is, what is LEED?  Please take 2 minutes out of your life to watch this video.   It is simple clear and is the best explanation of LEED.  See, now you know.  The next step is to get LEED Certified.  There are many different classifications.

Now that you are certified the next question is, “How do I make money with this?”  Well that is a great question.  I am helping ramp up a Local USGBC chapter,  and that is one of the issues we are working on.  The diversity of the business involved and the networking opportunities are well worth the time and effort.  Maybe some of the readers of this post could chime in with some of their real world experiences.

One of the interesting sides of my involvement with the group is that a group of students from local university has become involved.  Find some students in your area ask the leader or members of the group to lunch.  The topics of the lunch conversations were:   Green jobs,  green job fair, on campus meetings to attend and speak at.  Community subsatinability, teaching or volunteering to help local business owners to use green and sustainable practices for savings.  Tours of the university to see their efforts.  Event on campus to showcase businesses, products, and people.  Possible meetings with local government and economic development organizations.  Volunteer to show them how to be green.  The students also had great interest in real world experience from the Commercial Real Estate point of view and  all of these conversations centered on the basic LEED principles.  One of the big questions from the lunch was, “Who can we look to now?”

My answer:  the BIG BOYS.  In my business that is CB Richard Ellis ranked the #1 green company in Real Estate.  Take one look at their efforts and they are GREEN everywhere.   They even have Green Tweets.   Jones Lang LaSalle also does a great job.  Of course, the students had no clue who these companies are, so I mentiontened Wal Mart, and they were like “ no way dude”.  Love them or hate them they are leading a green pathway and we should all take notice. Think of the amount of Land and Square footage they have under roof to manage.  And before my brain exploded they said “ dude ..they always say dude,  you need to check out The Green Build Expo.  So I did, and WOW!   27,000 attendees, the sessions, tracs  and the product knowledge.  This event is in Chicago next year in November of 2010, and Yes, I am so there.  The lunch, however, was interesting, stimulating and fun.  I had to go home and take a nap after lunch.   My brain and old body needed a rest.

The lunch did solidify many things for me.  Research more.  I need to have the Green knowledge. I need it and my clients need me to have it.  Get involved, not just locally but on a regional level.  The knowledge may be there but there has to be some business there also.  If the big boys are doing it then it’s not just for fun and green hugs.

The “greening” of Commercial Real Estate is not a fad, but rather a fundamental change.  Commercial Real Estate groups that want to attract the best deals, strategic investors, and marquee anchor tenants should realize this change.  We need to embrace it.  gorillaWill we turn Commercial Real Estate Green into Gold?

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17 Comments

17 Comments

  1. Doug Lazovick

    November 30, 2009 at 2:20 pm

    Duke,

    With all those facts, I thought I was studying for my LEED AP all over again 😉
    Honestly, couldn’t agree with you more about Green being a fundamental change for CRE. Get on board before the train leaves the station.

    Doug

  2. Duke Long

    November 30, 2009 at 2:50 pm

    Doug,
    What no controversy ,no green is BS, well I do appreciate when someone agrees with me. Thanks

  3. Joe Stampone

    December 1, 2009 at 11:35 am

    Duke, thanks for this write-up. I think a developer would have to be extremely stupid not to build green. Beyond our social and environmental responsibility, there is no longer much of a premium for building green. I highly recommend a new ULI book called “Greening our Built Environment: Costs, Benefits and Strategies”

    I’m also glad that LEED continues to evolve and introduce new certifications such as LEED for Neighborhoods. I think the short-term future of development is urbanizing suburbs and transit-oriented development. However, for green to really take off, cities will have to increase incentives for green buildings, jobs, and communities.

  4. Duke Long

    December 1, 2009 at 11:57 am

    Joe,
    Could not agree more.
    I have seen a huge effort and open dialogue at my local level to embrace the LEED and or “Green” sustainability concepts. I am literally going to a meeting tonight at our local university for a brainstorming/goals session. One of the first items will be:How do we integrate the Regional/County and City governments into the overall plan? BTW the University is light years ahead of them all,and is the “800 lb.gorilla”. They have already created green roofs,using student ideas and skills and I met the person responsible for all green building and sustainability practices on campus. Amazing.
    The ULI ( Urban Land Institute) is a great organization and thanks for the suggestion.

  5. Ellen Mann

    May 21, 2010 at 8:05 pm

    Appreciated your insight, Duke, and the link to the clear definition of LEED video! Can’t tell you the number of building material suppliers who ask “Why should I consider offering more “green” materials? Why should owners care if there buildings are LEED certified? (and my favorite…) How’s this going to make me money?”

    I’m doing some research on the size of the “green” building market and how the USGBC audits LEED projects. Is there an association of LEED inspectors out there yet?

    Thanks for any feedback

    • Duke Long

      May 23, 2010 at 10:17 am

      Ellen,
      Thank you for commenting. As for association of inspectors? I have no clue. I bet if you search there has to be something started. Check with USGBC. They may be able to help.

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Commercial Real Estate

5 questions to consider when deciding to buy or lease an office space

When considering whether you should lease your office space or buy, an industry expert outlines the questions you should ask yourself.

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office leadership

Should you buy or lease an office space?

Many people set up shop and lease office space, assuming this is their best, and often only option, but there are some instances where buying office space is a better option. Many blindly make this decision based on a gut feeling, and we’re not saying that is a bad thing, we’re saying that in addition to that instinct, these five questions should be asked when considering whether you should lease or buy an office space.

Stan Snipes, senior advisor, Sperry Van Ness Investec Realty of Nashville notes that the two options depend on several variables, as he outlines below:

1. Is your business well-established?

If your business is still in the startup phase, I rarely recommend buying. During the next 5 to 10 years you’ll experience employee count fluctuations, client and customer oscillations and even business direction and strategy adjustments. That is, you’ll need to be flexible, not tied to a certain space. Additionally, any leftover capital should most likely be recycled back into your budding startup. You don’t want to stretch yourself too thin.

The only exception that applies some of the time — not every time — is if your startup is in the technology space. Oftentimes tech employees can work remotely, or the technology is automated and won’t require more employees in the future. Additionally, clients of many tech startups can successfully access the company’s offering without visiting a physical office space.

2. Will you endanger your business with a property purchase?

Yes, buying can be a great investment and add a source of revenue, but even well-established business owners need to think about the stress that buying a property can put on their bottom line. Oftentimes your time and money is best spent on what you do best, running your enterprise. If buying means you won’t be able to focus essential resources to your first priority, your business, then you might want to hold off on buying.

Further, because commercial real estate can be a great investment, business owners are sometimes so eager to get in the game that they sell off portions of their business to finance the purchase. This is a bad idea. You should not let real estate decisions determine how you run your business. You’ve worked long and hard to build a successful company — don’t give it away. Another deal with always come along.

3. Do you have heavy, difficult-to-move equipment?

If you have machinery or specialized equipment that make it difficult for you to move, buying may be a great option for you. Two primary reasons: 1.) Lugging dense equipment from leased space to leased space is annoying, cumbersome and costly.

Plus, you increase the chances of damaging it every time you move. 2.) When a landlord knows it’s difficult for you to relocate, he or she is holding the cards when it’s time to renew your lease. If your lease doesn’t have a stipulation to remediate this, leasing office space will cost you more money than it should. More often than not, buying a custom space for your specialized equipment is the way to go.

4. Does your location affect employees or clients?

If attracting and maintaining top-notch employees means securing office space in your city’s prime business district, finding the perfect space to buy may be difficult. Why? Prime business districts usually have lower vacancy rates, which typically means higher prices plus fewer properties to choose from. Anytime you’re limited to a narrow location, you risk not landing the best deal. This doesn’t mean don’t buy, just understand what you’re up against from the onset.

The other issue you may face in buying location-specific space is when your customers or clients depend on your position for convenience. This is a challenge when and if your city’s submarkets are in transition. The trendy spot of the last five years, may not be in vogue five years from now. A lease allows flexibility to move where your customer and clients need you to be.

5. Are you prepared to be a landlord?

There’s a lot of maintenance that goes along with owning a building. Will you have the ability to hire a maintenance crew or will you tend the bathrooms, burnt out light bulbs and overflowing trash bins yourself?

Furthermore, many landlords have easy access to financing that could benefit you in the form of a tenant improvement package. Even though you may have capital to buy your building, can you afford to build it out the way you want to? The cost of ownership is sometimes underestimated. Make sure you’ve considered all of the possible expenses that go along with buying your office space.

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Commercial Real Estate

Pace of commercial real estate improvement is slowing

(Commercial Real Estate) The commercial real estate sector has improved substantially since the economy crashed, but is now showing signs of slowing, but data does not indicate lost ground.

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commercial real estate

Commercial real estate outlook is positive

According to the National Association of Realtors’ (NAR) quarterly forecast, commercial real estate is continuing to improve, but the pace is slowing.

Dr. Lawrence Yun, NAR chief economist, said that fundamentals are still on an uptrend. “Growth in commercial real estate sectors continues at a moderate pace from a very slow pace of absorption, despite job additions to the economy. Companies appear hesitant to add new space,” he said.

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“Office demand is expected to see only slow and gradual improvement,” Dr. Yun added. “Demand for retail space is benefiting from improved household wealth, while industrial real estate is stable with increasing international trade, which requires warehouse space. Of course, the apartment market fundamentals are the strongest, as nearly all of the new household formation in the past 10 years has come from renters, and not homeowners.”

Forecasting the future

Overall, national vacancy rates in the coming year are forecast to drop 0.2 percentage point in the office sector (the sector with the worst vacancy rates) to 15.6 percent in the first quarter of 2015.

Vacancy rates are projected to fall 0.1 point in industrial to 8.9 percent, and 0.3 point for retail real estate to 9.9 percent.

With rising apartment construction, the average multifamily vacancy rate will edge up 0.1 percent to 4.1 percent, but this sector continues to experience the tightest availability and strongest rent growth of all the commercial sectors.

Rental rates for various sectors

Office rents are projected to increase 2.3 percent in 2014 and 3.2 percent next year. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is likely to total 44.6 million square feet this year and 50.0 million in 2015.

Annual industrial rents should rise 2.4 percent this year and 2.6 percent in 2015. Net absorption of industrial space nationally is seen at 106.1 million square feet in 2014 and 110.6 million next year.

Average retail rents are forecast to rise 2.0 percent in 2014 and 2.3 percent next year. Net absorption of retail space is likely to total 14.6 million square feet this year and 20.9 million in 2015.

Average apartment rents are projected to rise 4.3 percent this year and 3.5 percent in 2015. Multifamily net absorption is expected to total 204,900 units in 2014 and 112,500 next year.

Regional performance varies

The markets with the lowest office vacancy rates in the first quarter are New York City, with a vacancy rate of 9.5 percent; Washington, D.C., at 10.2 percent; Little Rock, Ark., 11.6 percent; Birmingham, Ala., 12.7 percent; and San Francisco and Nashville, Tenn., at 12.8 percent each.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 3.7 percent; Los Angeles, 3.8 percent; Miami, 5.8 percent; Seattle at 5.9 percent; and San Riverside/Bernardino, Calif., at 6.1 percent.

Markets with the lowest retail vacancy rates include San Francisco, at 3.1 percent; Fairfield County, Conn., 3.8 percent; Long Island, N.Y., 4.8 percent; San Jose, Calif., 5.2 percent; and Northern New Jersey and Orange County, Calif., at 5.3 percent each.

Areas with the lowest multifamily vacancy rates currently are New Haven, Conn., at 2.1 percent; Minneapolis and New York City, 2.3 percent; and Oakland-East Bay, Calif., and San Diego, at 2.5 percent each.

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Commercial Real Estate

Commercial real estate improving modestly, little change to come

As commercial real estate improves across all sectors, the gains have been modest and NAR predicts they will continue to inch forward.

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detroit

Commercial real estate sector is improving

According to the National Association of Realtors’ (NAR) quarterly commercial real estate forecast, commercial real estate is improving modestly, with little change seen for the near future. Dr. Lawrence Yun, NAR’s Chief Economist said in a statement, “Jobs are the key driver for commercial real estate, and the accumulation of 7 million net new jobs from the low point a few years ago is steadily showing up as demand for leasing and purchases of properties,” he said. “But the difficulty of accessing loans remains a hindrance to a faster recovery.”

NAR reports that leasing activity rose 2.0 percent in the third quarter compared to the second, and sales levels are higher than a year ago.

Yun said there have been some shifts in commercial purchases. “Investors have been looking for better yields, and have found good potential in smaller commercial properties, notably in secondary and tertiary markets. Sales of commercial properties costing less than $2.5 million in the third quarter were 11 percent above a year ago, while prices for smaller properties were 4 percent above the third quarter of 2012.”

Commercial investment in properties costing more than $2.5 million rose 26 percent from a year ago, while prices for large properties were 9 percent above the third quarter of 2012.

National vacancy rates over the coming year are forecast to decline 0.2 percentage point in the office market, 0.6 point in industrial, and 0.5 point for retail real estate. The average multifamily vacancy rate will edge up 0.1 percent, but that sector continues to see the tightest availability and biggest rent increases.

Retail vacancy rates should be going down

Retail vacancy rates are forecast to decline from 10.4 percent in the fourth quarter of this year to 9.9 percent in the fourth quarter of 2014. Average retail rents should increase 1.4 percent in 2013 and 2.2 percent next year. Net absorption of retail space is projected at 11.0 million square feet in 2013 and 18.1 million next year.

Multifamily construction will meet demand

Multifamily Markets
The apartment rental market – multifamily housing – is likely to see vacancy rates edge up 0.1 percentage point from 3.9 percent in the fourth quarter to 4.0 percent in the fourth quarter of 2014, with new construction helping to meet higher demand. Average apartment rents are forecast to rise 4.0 percent this year and 4.3 percent in 2014. Multifamily net absorption is projected to total 239,400 units in 2013 and 211,300 next year.

Office rents should be going up

Vacancy rates in the office sector are expected to decline from a projected 15.6 percent in the fourth quarter to 15.4 percent in the fourth quarter of 2014. Office rents should increase 2.4 percent this year and 2.5 percent in 2014. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is seen at 32.2 million square feet this year and 46.1 million in 2014.

Industrial vacancies on the decline

Industrial vacancy rates are likely to fall from 9.2 percent in the fourth quarter of this year to 8.6 percent in the fourth quarter of 2014. Annual industrial rents are expected to rise 2.3 percent this year and 2.5 percent in 2014. Net absorption of industrial space nationally is anticipated at 97.0 million square feet in 2013 and 104.9 million next year.

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