I just had the pleasure of serving on a panel at GreenBiz Media’s VERGE Boston conference, which focused on the convergence of buildings, technology and transportation. The panel, called “The Trillion-Dollar M2M Opportunity,” was about the dramatic impact of machine-to-machine (M2M) technology on four industry segments: energy, transportation, the built environment and agriculture. 

M2M technology, also known as the “industrial internet” or the “Internet of Things,” is the term used to describe the application of information and communication technology to improve and automate almost any business process. In the built environment or real estate world, this technology is enabling us to pull data out of building automation systems. It allows us to run real time analytics to fine tune the performance of all building systems and equipment and significantly energy consumption. 

The analytics also enable us to tell when the performance of equipment is beginning to degrade, and to correct small defects before a failure occurs. The Jones Lang LaSalle service that utilizes this technology is known as IntelliCommand. As discussed in the panel discussion, IntelliCommand consistently delivers 10% to 25% energy savings while improving operational performance for our clients. 

On a related note, The Carbon War Room recently released a white paper that further describes the exciting possibilities across all four industry segments, and describes the M2M industry as a potential trillion dollar industry. If you think that the internet changed the way we do business, the industrial internet is going to have an even more dramatic effect.

-Dan

The Boston multifamily market remains ones of the best performing markets in the country. As a result, institutional investors view Boston as one of the top three most desirable markets, alongside New York and San Francisco. 

Their desire to deploy capital into Boston multifamily has resulted in unprecedented asset pricing and has stimulated new development throughout the region. Despite many high profile developments rising before our eyes, opportunities exist, many hidden in undersupplied pockets in the suburbs.

Relative to most other cities, Boston’s employment remained insulated through the downturn thanks in large part to a heavy concentration of jobs in healthcare, high-tech, and life sciences. These sectors weathered the recession fairly well, and have taken over for financial and legal services as the primary drivers of growth in our local economy. In fact, as of September 2012, Boston had regained all of the 103,000 jobs lost during the recession.  This economic resilience, combined with a lack of new multifamily deliveries from 2009-2012, has caused metro-wide rents to grow by almost 15% from the last peak.  Some especially strong submarkets have experienced growth of over 30%.  Vacancy now hovers around 4%, indicating a short supply of quality product.

Boston is now on the front end of an unprecedented increase in demand for apartments due to improving renter demographics.  Baby boomers are becoming empty nesters and their echo boomer offspring are beginning to form new households.  Adding fuel to the fire, the median marriage age continues to rise and single-family credit remains tight. 

What does this all mean?  Household formation, the primary driver for housing demand, is expected to strengthen to 1% for the next five to ten years.  Close to 7,000 new renter households will be created per year in the Greater Boston area, double the historical rate.  This bodes very well for multifamily, as long as we don’t overbuild.

-Michael

From Chelsey Fitch
Property Manager
Jones Lang LaSalle

It’s not imperative for a building to be LEED Certified to attract tenants, but these days it definitely helps. Here is some food for thought regarding LEED .

On average, LEED Certified buildings have lower operating costs, higher assessed building values, and higher rental rates.

To achieve certification status the building is required to go far above and beyond minimum building code requirements.

While LEED Certification can present many large upfront expenses, the future savings over the lifetime of a building’s operations can create and attractive ROI for building owners and tenants.

Going LEED can be time consuming and difficult to attain. Therefore, the buildings that are certified are perceived as higher quality, and more likely to qualify for other industry certifications.

Let’s not forget the reason LEED Certification began. It was to improve our environment. While most decisions come down to dollars and cents and a compelling ROI, consider the oft forgotten  prophecy:  
Only after the last tree has been cut down.
Only after the last river has been poisoned.
Only after the last fish has been caught.
Only then will you find that money cannot be eaten.

The idea is clear that energy efficiency is important not only to the future of business but to the future of human beings. At the end of the day, without clean air and water there isn’t much of a future for business. Look at the big picture when deciding to LEED or not to LEED.

-Chelsey

It’s no secret that any startup that is entering this space is looking to chip away at CoStar’s market share, or create a new model for how space is marketed and found. If I were CoStar, I would be very afraid. Their product is cumbersome and their data is rarely accurate.

The most reliable service CoStar provides is their ability to market available space within the brokerage community. The problem is, however, that everybody uses it and nothing else. This is a huge opportunity for startups.

Think about it. If there was a way to register interest in office space on the internet without having to speak with a broker, who (or what) would be the procuring cause of the interest in space? The listing broker or the website on which the interest was registered? The brokerage companies that partner with the new listing services first will be the ones that benefit from the eventual wave of internet tenant demand from tenants directly and brokers looking on behalf of tenants.

After all, brokers are the experts, but they might not be the best or most efficient source of demand. 

-Matt

The emerging big trend in sustainable real estate is the industrial sector.

While the triple-net lease structure dominant in the industry has obscured efforts to make industrial space more sustainable, both owners and tenants are seeking ways to make buildings greener. The push is coming from the clear economics of energy savings. Many space users are now pursuing corporate social responsibility objectives as well, which is forcing them to look at the industrial space they occupy.

There are several key areas of interest driving the industrial discussion. Alternative energy opportunities now go beyond rooftop panels. They include energy efficiency concepts such as ground source heat pumps, ways to take advantage of plunging natural gas prices, fuel cells, small biomass operations and co-generation.

Lighting technology has advanced so quickly recently, with new fixtures and control devices,  that retro-fits, including LED-based projects, are being reviewed by many industrial building owners and tenants.

Building envelopes (roofs, walls, doors and windows) can be examined with new state-of-art technology that pinpoints integrity problems.

Sophisticated control systems are re-writing the book on how to manage HVAC systems to optimal efficiency.

Whatever the focus, the message is getting louder. Industrial real estate is jumping onto the green bandwagon in full force.

-Bob

I’ve never been a fan of waiting. It makes me feel anxious. I like things to be figured out and taken care of quickly.

 As a commercial real estate broker, I feel like I am always waiting for the latest technology that is supposed to make my job easier. It never seems to happen fast enough.

I’m not alone in this thinking. Recently I attended a talk here in Boston with industry execs and discussed, among other topics, how advancements in technology may eventually disintermediate brokers from the deal process. Or at least begin to erode the fee structure.

Comparisons were drawn to the travel, residential real estate, and financial services industries to support the contention that unless the CRE industry begins to adopt new technology, it will be marginalized by the technology itself. To be clear, when I refer to CRE technology, I mean software solutions that utilize the internet to increase efficiency in a process or transaction within our industry.

Who really cares? A CEO is required to care because he has to., For the broker, though, is technology really that big of a differentiator? I believe that the answer is a resounding yes. I argue that there are two categories of CRE technology that will eventually shake up the industry. More specifically, it will dramatically change how brokers get paid and add value.

-Matt

Leasing volumes were down 20% in 2012, and down 30% in Q4 year over year. Gross leasing activity has likely bottomed and will stabilize thi year, with better economic growth (as the year progresses) offsetting the continuing efficiency for tenants.

Tenants are taking less space on average and becoming more efficient. This trend is becoming more widespread and across industries. In our agency leasing portfolio, the average size for leases was down about 12%. In a recent study Jones Lang LaSalle conducted on bank and law firm relocation transactions, tenants were on average giving back approximately 15% of the space they occupied when moving to a new location. This trend will continue in the market for the next several years as we are only about 20% through the efficiency trend. 

Corporate real estate executives are using space utilization, SF per person, workforce mobility and hoteling to drive better space use and cost metrics, while pushing to try to use their space to drive productivity and enable collaboration in the workplace. 

One byproduct of increasing densities by tenants is that building systems are being pressed past the designed limit. HVAC, elevator, restrooms, and parking capacity have all been more carefully looked at by tenants packing people in the space. 

Flexibility  is clearly still a focus for tenants across industries. One indicator of this is that average lease term in our agency leasing portfolio is down slightly. Tech firms often can’t plan past 6 months, but they are asked to sign leases for 5-7 years.  They need flexibility with regard to expansion options, cancellation options, pocket space, etc., and are often willing to pay a premium for it.

-Ben

Chicago Grid sat down with Colin in his Aon Center office to discuss his view on shrinking cubicles and shifting work ethics. Here is an excerpt from that Q&A.

Q: Much has been written about shifts in the labor market — more contractors, remote workers, constant connections. How does that affect the office leasing business?

A: The office environment will be as required as ever because even in the flexible working world people do need to come together in order to interchange with their colleagues — less than they perhaps used to because they can do it very effectively with mobile devices — but nevertheless they need some sort of anchor in their professional lives.

Q: The size of the average office space is shrinking, and so is the cubicle. What does that do for demand?

A: Over time, it decreases perhaps the overall demand for space, but it increases the demand for certain sorts of space. High quality spaces located around transportation hubs, around lifestyle centers like the center of Chicago, high quality buildings, environmentall friendly buildings — because that’s what the younger generation increasingly wants to be identified with, as do corporations.

Q: Tell us about the calculus of retrofitting a building to make it more environmentally friendly. What kind of investment do you recommend to a client?

A: If we move in and do a building audit, we can reduce the costs to run a building by maybe 15 percent, just by re-tuning the efficiency of the chillers, making sure the thermostats are set properly, sectioning off some of the lighting or putting efficient lighting in. That has almost no incremental cost.

Then there’s a whole bunch of stuff where you can get pretty attractive one to three-year paybacks. It’s replacing the light bulbs with modern efficient incandescent lighting. It’s replacing the thermostats so the switch-on, switch-off times are more accurately monitored. Just simple stuff.

Generally speaking, avoid the exotic technologies. Generally speaking, photovoltac cells don’t work without big subsidies and lots of exotic tax breaks. Putting windmills on the top of buildings doesn’t work. It’s the old and tried stuff that works very well.

Q: Do you see the real estate community getting more interested in sustainability or has it peaked?

A: They paid almost no interest to (sustainability) 10 years ago. That would be unthinkable today. Think ten years forward, as people continue to see storms, and water continues to rise and ice continues to melt and floods happen in New York; it’s going to continue.

-Colin

As building managers we tend to think inside our buildings, making sure they operate effectively.  But, in doing so, we are missing a bigger picture. The office of the future extends well beyond the walls of the buildings that we manage.

The new workers coming into our spaces do not fit into offices or even cubicles. They are mobile and unconstrained by the old work structures. Where and when work happens has less to do with “normal” business hours or workspaces. These new employees are expecting more virtuality, and expect work environments based on flexibility and work-life balance. They expect office buildings to fit this new approach with different services, amenities and basic design features.

Building managers need to be thinking about how building occupants commute (or tele-commute), and how to support them. We have to provide services that are outside of normal business hours.  We must be sure that the technology of the building supports the technology needs of the people that are employed by our tenants. 

Take a look around. The world out there is changing pretty fast. Successful buildings will be the ones that bring that outside world in.

-Bob

Architectural firms and consultants have moved beyond the space to offer “change management” services. Sometimes the message of the shrinking individual workspace is better received coming from a third party with a broader view of the world.

Change management is really communication. The message is somewhat softened, but the real driver is cost. Companies who understand how to deliver this message in a positive way are a welcome addition to the project team. Still, project managers bear a large part of the burden in delivering the message of change, given their intensely intricate involvement with the client population.

The level of openness and transparency creates a lot of life in the space. Companies are pushing the envelope and trying to see how much flexibility and openness is too much.” The new generation of workers tolerates a lot more openness and a wider variety of space. In fact, they embrace it. According to one of our clients: “I am typically in the office on somewhat untraditional hours, and at 11 PM I want to sit on a couch and work.” We believe that the variety of space available for work is inspirational.

Other behavioral changes are taking place. Some companies have found that they have to create and monitor behavior and “office etiquette” differently. Another JLL client found they had to remove the opaque film from office fronts because people were using them as “permanent” spaces instead of temporary huddle or team rooms. Some companies are handing out headsets in an effort to help distracted open office workers to focus on their tasks at hand. 

“ ‘We’ space may be great, but let’s not lose site of the importance of ‘me’ space as well. Some people and some tasks do require more concentration. While interaction is good, a decent percentage of time in the office is taken up with nonwork-related conversation and distractions.

And some firms are not following the trend. JLL sees their many law firm clients resisting. The dark wood is largely gone, and there are fewer secretaries to partners, but the private offices are still there. ‘Hard-core’ engineers are still in private offices – some as small as 6′ x 8′, but with walls and a door.

A lot falls on designers to create space with new parameters, changing expectations and multiple generations. Productivity, and non-productivity, can happen anywhere. It’s about a host of factors beyond square feet per person.

-Melisa

To see this entire article in Banker & Tradesman click here.