Starbucks and Sustainability Rule Offices

Metro Albuquerque area commercial real estate developers got the word from two national figures today. Some fly-over feeling threaded the talks which might be expected as these were national level people, concerned by definition with larger cities. Still, the material was interesting.

The speakers were San Jose-based David Pogue of San Jose, California, global director of sustainability for CB Richard Ellis, and Jeff Langdon, of the Santa Fe-based Rosemont Realty Services.

Sustainability in commercial real estate is about saving money and, though Pogue didn’t say so explicitly, for larger firms sucking up to the environmental coercion from the far left such as the Sierra Club. The green measure is an Energy Star label and / or being LEED certified.

The economic part is simple; use less energy and costs drop, meaning that, other things like rent equal, the building makes more money and, over time, grow in value.

The political part is a bit scary. Some larger cities are requiring that new construction be LEED certified. Large tenant improvements are getting the same requirement. Pogue sees a future where every light bulb (I think I got that right) will have a URL address. Big Brother will be in the building management business.

Cities such as San Francisco, Seattle, Boston and New York love the stuff. Mining companies are big on using less energy, which figures since they are in the business, understand the issues and are prime targets of the enviros. The two greenest cities, according to CoreNet, a consultancy, are Denver and Houston, home to mining and oil and gas firms.

Langdon started with the good old days when people worked in buildings and the common lease was 15 years with no cancellation clause. Today people work everywhere, The leases are more like ten years with a cancellation and maybe three years.

A big change is that accounting regulators say leases must be on the books. This will force shorter leases because firms don’t want to recognize that long term liability.

Starbucks is the new king of office space, Langdon said. This goes with my realization of a few years ago that Starbucks didn’t sell coffee, they rent table space. The price of the coffee is the rent for the table.

Still, Langdon said, “the basic office building” model remains the same. Space is customized for tenants. Transactions are expensive and slow. Owners get income from rent.

For the future some customers are saying they want to use the product—the office building—differently. A declining number of square feet per employee is one sign. In 1990 the space was 300 to 350 square feet per employee. In 2010 it was 200 to 220. The forecast is for 150 square feet.

For owners, the problem is that the buildings remain in place, mostly anyway. Some offices become hotels.

We have experienced this phenomenon. In 2005 in Washington, D.C., we stayed in a hotel that once was a bank. In Omaha, Nebraska, our hotel had been a creamery.