In the $90 billion U.S. office construction sector, Class A and Class A+ properties are the darlings of every major metro market. Owners and developers of these amenity-rich, high-performance buildings are competing to lure top-notch companies willing to pay the most lucrative lease rates—and to keep them there long-term.
There’s certainly plenty of money to be made in building and rehabbing Class A office buildings. But what about their less-flashy counterparts, Class B and Class C properties?
A new Urban Land Institute report, researched in partnership with the Rocky Mountain Institute and the Building Owners and Managers Association (BOMA), suggests that there is significant “hidden value” waiting to be unlocked by owners of Class B/C properties—and plenty of work for AEC firms that cater to these segments of the office market.
For myriad reasons, these properties are woefully outdated and in serious need of a tune-up to meet baseline energy efficiency standards. The ULI report found that even the simplest of energy efficiency measures—low- and no-cost tactics such as upgrading general office illumination to LED fixtures, optimizing HVAC schedules and setpoints, performing routine preventative maintenance, and engaging tenants in occupant behavior measures—could net an immediate 15% savings in energy costs.
Larger capital investments—such as improvements to the building envelope and roof system, or installation of high-efficiency building systems, sensors/controls, or solar panels—could slash energy use by 35% or more, with paybacks in the three-year range. “That can reduce a property’s operating expenses by $0.26 to $0.61 per square foot, increase net operating income by 1.9% to 4.3%, and boost property value by approximately $4 to $8 per square foot,” said the authors.
Why haven’t more Class B/C property owners taken steps to improve the energy performance of their buildings? The report pinpoints three primary reasons: limited working capital to pay for project costs, inadequate staff capacity to implement these measures, and a lack of priority versus other business activities.
Furthermore, by successfully instituting a green lease program, owners can recoup a sizable portion of the initial investment, which would further improve the financial outcomes for the property.
If all of this is so elementary, as the report outlines, why haven’t more Class B/C property owners taken steps to improve the energy performance of their buildings? The report pinpoints three primary reasons: limited working capital to pay for project costs, inadequate staff capacity to implement these measures, and a lack of priority versus other business activities.
“Staff working at Class B/C buildings wear multiple hats. Rarely do they have dedicated third-party management or building engineering staff with time to focus on identifying, championing, and implementing energy efficiency efforts,” said the authors.
The report offers a roadmap for getting started.
For a free PDF download of the ULI report, “Unlocking Hidden Value in Class B/C Office Buildings,” visit BDCnetwork.com/ClassBC.
Related Stories
Office Buildings | Jun 8, 2022
Former L.A. Times newsroom/printing plant remade into office campus
Phase 1 of The Press, an adaptive reuse project that is converting an old Los Angeles Times facility into a modern office campus, was recently completed in Costa Mesa, Calif.
Office Buildings | May 19, 2022
JLL releases its 2022 Office Fit Out Guide
JLL’s 2022 Office Fit Out Guide report provides benchmark costs to build out a range of office types across major markets in the United States and Canada.
Headquarters | May 10, 2022
JPMorgan Chase’s new all-electric headquarters to have net-zero operational emissions
JPMorgan Chase’s recently unveiled plans for its new global headquarters building in New York City that is rife with impressive sustainability credentials.
Building Team | May 6, 2022
Atlanta’s largest adaptive reuse project features cross laminated timber
Global real estate investment and management firm Jamestown recently started construction on more than 700,000 sf of new live, work, and shop space at Ponce City Market.
Office Buildings | Apr 28, 2022
A 48-story office tower to rise over boomtown Austin
In downtown Austin, Texas, a planned 48-story office tower, The Republic, recently secured its first major tenant—allowing for the groundbreaking by midyear.
Mixed-Use | Apr 22, 2022
San Francisco replaces a waterfront parking lot with a new neighborhood
A parking lot on San Francisco’s waterfront is transforming into Mission Rock—a new neighborhood featuring rental units, offices, parks, open spaces, retail, and parking.
Market Data | Apr 14, 2022
FMI 2022 construction spending forecast: 7% growth despite economic turmoil
Growth will be offset by inflation, supply chain snarls, a shortage of workers, project delays, and economic turmoil caused by international events such as the Russia-Ukraine war.
AEC Tech | Apr 13, 2022
A robot automates elevator installation
Schindler—which manufactures and installs elevators, escalators, and moving walkways—has created a robot called R.I.S.E. (robotic installation system for elevators) to help install lifts in high-rise buildings.
Office Buildings | Apr 11, 2022
SOM-designed office tower aims to promote health and wellness
Skidmore, Owings & Merrill (SOM) recently completed work on 800 Fulton Market, a new mixed-use office building in Chicago’s historic Fulton Market/West Loop neighborhood.
Projects | Apr 6, 2022
Ryan Companies expands Chicago presence with new West Loop office
Ryan Companies US, Inc. (Ryan), a national leader in commercial real estate services, announces it has enhanced its Chicago presence with the opening of a new downtown office at 224 North Desplaines in the city’s West Loop neighborhood.
