Say what you will about the benefits of clean energy or the costs of pollution, the jury has returned an unambiguous verdict on the greening of the commercial real-estate market. The niche has become mainstream. Anyone who says green buildings, which are certified by third-party verifiers as demonstrating superior environmental performance and resource efficiency, are “boutique” has not been paying attention.
The commercial buildings sector boasts the most explosive growth in green building. In 2010, a third of all new commercial construction was green, amounting to a $54 billion market for commercial green buildings. By 2015, green buildings in the commercial sector are expected to triple, accounting for $120 billion to $145 billion in new construction and $14 billion to $18 billion in major retrofit and renovation projects.
But not all commercial buildings are the same. For all practical purposes, there are three classes of commercial buildings – Class A, Class B and Class C. These classifications are commonly used as a proxy for a building’s ability to attract high-value tenants.
While there is no standard definition for what qualifies as Class A, Class B and Class C commercial buildings, the Building Owners and Managers Association suggests considering the following criteria when classifying commercial buildings:
Class A: Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence.
Class B: Buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area. Building finishes are fair to good for the area and systems are adequate, but the building does not compete with Class A at the same price.
Class C: Buildings competing for tenants requiring functional space at rents below the average for the area.
In other words, Class A buildings are the most desirable and Class C buildings are the least desirable from the typical tenant’s perspective. Greater desirability means more money. It turns out Class A is where the green paradigm has achieved the deepest penetration.
“Green building is fundamentally altering real estate market dynamics – the nature of the product demanded by tenants, constructed by developers, required by governments and favored by capital providers,” according to RREEF Research. “The upshot will be a redefinition of what constitutes Class A properties and even institutional-quality real estate.”
The predicted “upshot” is rapidly becoming a reality in Manhattan‘s commercial real-estate markets, which is dominated by Class A properties. In Manhattan, Class A office buildings account for 61% of the total market. Class B buildings make up 26% of the market and Class C accounts for the remaining 13%, according to Cushman & Wakefield.
While stricter government regulation may ultimately make green buildings the de-facto standard for new and renovated buildings in the future, tenant demand is the primary reason why green buildings are becoming mainstream in today’s Class A commercial real-estate market.
“At Hines, we specialize in Class A space, and we’ve reached the point where clients don’t think it’s Class A unless it’s green,” said Jerry Lea, the Executive Vice President of the real-estate investment and management firm.
Many tenants are willing to pay a premium for space in green buildings because of the lower operating costs, higher worker productivity and reputational benefits associated with the superior environmental performance of green buildings.
If the past presages the future, today’s green buildings market is chump change compared to the opportunity likely to come down the pike over the next decade. To put the scale in perspective, in 1995, the total floorspace of U.S. commercial buildings – 58.8 billion square feet of floorspace – exceeded the total area of the State of Delaware and amounted to more than 200 square feet for every U.S. resident.
Talk about a sea of green.
Forbes
The greening of the commercial real estate market is a big step in Sustainability. I believe buildings account for a large proportion of the greenhouse gases that pollute the environment. Such market penetration in the green commercial real estate market with 61% of Class A buildings proves that people do believe that climate change is a real problem and attempts are being made to remedy the problem. Hopefully this represents a bigger phenomenon of greening entire cities in terms of the buildings of the cities, but also important is that greening in the buildings area triggers greening of transportation with people either walking to work or to get around or using bicycles.
ReplyDeleteCorporate America plays a crucial role in ‘greening’ the planet. The obvious reason is that they occupy the buildings here in Manhattan. Building owners and developers have to work to make this world a better place for sustainability and Green initiatives. Companies such as SL Green, Trump Organizations, and the building management companies such as Cushman & Wakefield should accommodate the needs of tenants who are looking for a greener and cleaner environment for their workers. This means there are four fundamental aspects to understand when it comes to their implications on these buildings. These include the nature of the product demanded by tenants, meeting the demands of those constructed by developers, government connections, and financial compensation.
ReplyDeleteUnfortunately it does cost more than a regular conventional building. The building has to provide more energy sufficiency because they use a lot of energy on their own. If you took a regular skyscraper, there are modifications that need to be put in place to be a Green Building. These buildings have to be ‘green energy’ conscious and the goal is to have a construction code that keeps a friendly environment in mind.
The maintenance aspect also comes into place here. The buildings janitorial material is compromised here because recycled paper for the bathrooms comes at a price initially. The good news is that A-class tenants can afford these. They are Fortune 500 companies that are making billions of dollars are the ones that are the most responsible for the corporate environment. Developers should use architects that comply with green regulations and use ‘Green’ contractors and architects.
The government should play a key role here to give tax incentives for companies to move into green buildings, and as for the owners of the building, cheaper loans and more tax breaks. This creates a suitable win-win situation. Aside from government incentives, the banks and the financing companies should provide cheaper loans. Most green buildings cost more than a traditional design.
Eventually, at the end, the tenants will tremendous benefit, including the corporate image, lower operating cost, and the employees will have a higher morale feeling they are helping or saving the planet.
Abraham Alvi
What I like most about these developments is that they are primarily driven by tenants' demands. Considering the growth of New York City (not just Manhattan but also places like Long Island City), commercial building should begin green from scratch as that will mitigate the initial costs and allow for more repayment time. The problem that I see is when government regulations begin forcing commercial and resident buildings to go green. Not only will buildings have to pay substantial renovation costs but building workers will also have to be compensated more for complex tasks such as sorting through garbage to categorize waste. This would all fall onto the tenants. Another problem that I see with regulations is that these tend to result in one positive effect which is mitigated by negative effects. In other words, developers will go green but will look for ways to cut costs in other areas. Many of the newer buildings I see popping up in Brooklyn and Queens are cheaply constructed and meant only for getting the developers short term money. 15 or 20 years from now these buildings will be falling apart. The article also says, "Many tenants are willing to pay a premium" for green space, but does not mention what the price cap is on their willingness.
ReplyDeleteI find it very interesting, but not the least big surprising that green building and construction has had the most success in Class A commercial properties. For one, prestigious and high-value buildings consequently attract wealthy and successful tenants. These tenants are more likely to be willing to pay premium prices for the highest caliber of amenities. Economically successful individuals are also likely to understand that investing in green real estate is a very smart move. While the initial costs are high, green buildings have low maintenance and operating costs, and high productivity equipment. Green buildings and green technology are definitely top of the line, and are attractive to Class A tenants for that very reason. New media outlets and health trends sometimes treat “going green” as a trend. While this is not the proper mindset to have on the matter, it does promote the desire the live/work in a green building because it would be good for a person’s image. It may sound far-fetched, but reputability is one of the keys to success, and green real estate is not an exception. As students living in Manhattan, we are no strangers to gorgeous skyscrapers and class A apartment buildings. It would be extraordinary to see these buildings adapt to green technologies, especially considering the concentrated pollution in the city.
ReplyDeleteCourtney Baxter
It seems that all markets not just the commercial real-estate market are taking green building seriously. Maybe, it’s because I’m an environmental studies major, but I feel climate change and other environmental problems are becoming a frequent topic people are talking about. Everyday we’re hearing about green roofs, vertical farming, and the encouragement of buy locally. Although, some of the current initiatives may be superficial it is what the environment needs to gain momentum in solving the real problem. Going back to the topic of “Breen Building” I think it’s a great idea builders have created a hierarchy for different building types. The American population is obsessed with purchasing the best and being viewed as the best (conspicuous consumption) and having that “best” based on environmental performance is a great idea.
ReplyDeleteI like the idea of the class A,B and C, in a way. This allows for people with all different finances to be able to live in one of these buildings. However, they are already saying how Class A is the most desirable and class C is the least. This causes much problems. But I guess there will always be factors like that with location and what not. Either way, it is a great idea but I would like to see less of green "building" and more of green "reconstruction". Let's make the places we have now greener rather than more and more and more buildings and destruction of habitats.
ReplyDeleteThis article rejuvenates the notion of good in America. Today it is more important than ever to take steps to decrease the harm we have done to this planet. People in charge of commerical properties have to give into what the renters want, as they want to increase the demand for their property, so this gives the power in our hands and we can take charge and make is segment of our economy green if we want. If we create demand because the people are aware of the positive effects of going green they will induce this into their daily lives. So that is one positive, another positive is the fact the people themselves are going ahead and realizing the long-term benefits of going green, because at the end of the day, the objective is to reduce price and increase productivity or value (depends on context), by paying a little more now they are saving in longer term, as appose to paying less now and more later. Together will better understanding of how they money is being saved and by creating demand for the green products we can make the economical world, which initially has a cruel cynical label attached to it, can become greener.
ReplyDeleteI think that the article is very interesting because it shows that people do believe in Global Warming and they are taking the initiative to retrofit buildings making them green and focus on “green” when constructing new buildings. It is also interesting to know that Class A building accounts for 61% of New York City. Green buildings are operated at a lower cost, a worker’s productivity is increase, the environment benefits from less pollution and it is healthier. I hope that green buildings get promoted outside of Manhattan to other states and other areas in NY and that it will be as popular and demanding by other tenants outside of New York City. I think that the government should try to help by making laws or whatever they can do where constructing new buildings are concern so that even the poor Class C have the benefits of a green building.
ReplyDeleteThis article basically proves my theory that no one will go green unless there is a beneficial factor for them. In this case green buildings provided companies will cheaper operating cost, higher worker productivity and reputational benefits associated with the superior environmental performance of green buildings. Without these benefits companies would not have any incentive to go green. At the end of the day more greener building are being produced which are more appealing to companies than regular Class A buildings. The overall goal is to achieve a greener economy and a greener planet; I believe step by step this goal will be achieved.
ReplyDeleteI think that the presence and advancing use of green infrastructure in buildings is huge in helping with being more environmentally efficient. The presence of A, B, and C class buildings is problematic, but with people continuing to push for greener alternatives it seems that in the future all buildings will be green. The article points out that the cost of operation is benefited by going green. Not only that, but when companies use green resources, it shows well to the public. I think that the progression of this is very important.
ReplyDelete-George De Feis
I wasn't surprised to hear that in Manhattan, Class A office buildings account for 61% of the total market. New Yorkers, especially Manhattanites love to have the best and purchase the very best. I think Corporate America, more specifically the commercial buildings sector, has a great influence the greening of commercial and residential space in buildings. While I think the financial benefits are more of a driver than the economic benefits in this expansion it is still a positive factor. I would also describe the paradigm of Class A building types having the deepest penetration of green effects as a plus. The redefinition of what a class A building and even class B (which holds the second largest percentage) will be fundamental in changing the real estate market dynamics overall. It will attract the wealthy and people love the "green trend" which is growing more popular as health conscious, organic lifestyles are increasing in popularity. People want to live healthier lives and living in "breen buildings" will become just as important as the market for these buildings become more available and attractive. Its a way to market the green buildings. One would think it to be a more obvious direction given the economic warnings and hazards that are evident through our current practices but the price tag of going green will always be a factor. Im just pleased that this is the direction the building sectors are heading in, especially after hearing that in "1995, the total floorspace of U.S. commercial buildings of 58.8 billion square feet of floorspace exceeded the total area of the State of Delaware and amounted to more than 200 square feet for every U.S. resident". Thats a sobering fact.
ReplyDelete-Sharda Naitram
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ReplyDeleteIt is an interesting concept that green buildings are now the "it" thing in manhattan. Manhattan is where people look to see what the new trend of the world is, whether it is in fashion, living, life, etc. It's great that more buildings are becoming green because they help the environment and is budget friendly towards the owners. Ideally green buildings should be created everywhere, but the cost to built these buildings are so expensive that unless you're a millionaire they are not easy to afford at all. The only problem with making class A buildings green for rich people is that the "working class" people cannot experience how green buildings will revolutionize their life, or promote it. We should be concerned with green energy into both Class A and Class B buildings because the working class does constitute the majority of the population, therefore promoting green buildings to them could essentially end up in more funding for more green buildings.
ReplyDeletethink it is greaet that green buildings are now starting to become the status quo in New York. After all, it not only offers environmental benefits but economic benefits as well. Green buildings are more efficient, and therefore, tenants can save on things such as water and energy bills. It would be interesting to see whether the push for green buildings has come as a result of people wanting to hinder climate change or whether they're motivated by the idea that they can benefit from savings if they were to buy space in green buildings. Either way, this demonstrates great progress. I'm not surprised, however, that green buildings is becoming a normal thing in New York, considering the fact that it is one of the greenest cities in the world. For years now the city has been making changes to become a greener city, and hopefully this can push other cities to adopt the same changes.
ReplyDeleteThis article seemed to briefly touch upon a potentially huge lead to reduce emissions of green house gasses. Specifically in New York, the author mentions that a large amount of real estate (61 percent), fall in the category of class A. If sixty one percent of buildings in Manhattan were to be built in a more environmentally conscious manner, it could have a very large and very promising impact on the future of the environment. That being said, I would be interested to research what the article means when it says these buildings will have "superior environmental performance and resource efficiency". Will the changes to these buildings be significant enough to actually have an impact on the environmental impact of commercial buildings. Many mainstream products marketed as being 'eco-friendly' or 'sustainable' often don't live up to the title, so it would definitely be prudent to review the long and short term environmental impacts of these proposed 'green buildings'.
ReplyDelete"While stricter government regulation may ultimately make green buildings the de-facto standard for new and renovated buildings in the future, tenant demand is the primary reason why green buildings are becoming mainstream in today’s Class A commercial real-estate market."
ReplyDeleteI believe the consumer driven demand for green buildings is a result of increased education and information spread about the increasing threat of the own brown economy model. It may be in part that "going green" is considered a trendy, "cool" thing to do, but a change in consumer tastes and preferences is a change in consumer tastes and preferences, regardless of the motivation behind it. Increase in demand = increase in quantity, and even though the market is sitting at the natural equilibrium, I believe that government intervention is necessary -only because the speed at which consumer tastes and preferences are changing and causing and increase in demand is not fast enough to match the demand our planet / environment is making for sustainability. Our government needs to incentivize for an even larger increase in the percentage of green constructs, especially in areas of the US that aren't major cities. Otherwise it may be too little too late.