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For myriad reasons, these properties are woefully outdated and in serious need of a tune-up to meet baseline energy efficiency standards.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 | Feb 20, 2018
Flex and co-working office spaces create value for users, tenants, and developers, according to a new survey
More landlords see these spaces as “long-term solutions.”
Office Buildings | Feb 19, 2018
Large photovoltaic “wings” help eliminate emissions from this Italian headquarters building
The wings have a surface area of over 1,100 sm.
Office Buildings | Feb 13, 2018
Office market vacancy rate at 10-year low
Cautious development and healthy absorption across major markets contributed to the decline in vacancy, according to a new Transwestern report.
Office Buildings | Feb 8, 2018
Custom home or corporate office? Investment firm wanted both
Designed by Vertical Arts Architecture, the building features design elements found in high-end custom homes in the region.
Office Buildings | Feb 8, 2018
The American Psychiatric Association moves into The Wharf
The new office occupies 3 floors at 800 Main Avenue SW.
Wood | Feb 5, 2018
The largest timber office building in the U.S. will anchor Newark, N.J. mixed-use development
Michael Green Architecture is designing the building.
Green | Jan 30, 2018
Welcome to the Jungle: Amazon’s Spheres have opened to employees and the public
The Spheres provide the most unique aspect of Amazon’s downtown Seattle headquarters.
Reconstruction & Renovation | Jan 23, 2018
New co-working space will focus on serving local, African-American youth in Miami
The new space has been dubbed ‘Tribe.’
Office Buildings | Jan 18, 2018
At the ready: spec suites make hard-to-rent office space more attractive
Filling a need for startups looking for quick move-ins.
Office Buildings | Jan 18, 2018
*UPDATED* Amazon narrows list of possible HQ2 locations down to 20 cities
The company expects to invest over $5 billion in construction and grow HQ2 to include as many as 50,000 jobs.