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Naturally, it’s a trend that has commercial real estate (CRE) professionals sitting up and taking notice, but what should we be considering as we contemplate a move into the space?

Location, location, location

It might be a cliché, but it’s never been more relevant than it is in the life sciences sector. One of the key requirements for successful bio-innovation is access to an ecosystem of related services. Life sciences companies often want to collaborate with others in their space. They may need hospitals and universities nearby, a pool of scientific talent, and easily accessible sources of capital. In short, a city like New York is just about perfect.

In many cases, the space usage needs of life sciences start-ups also change quite rapidly, making it imperative for them to operate in an area where they can easily upgrade or relocate based on evolving requirements.

What that means from a CRE perspective is that there’s a lot to think about in terms of how we redesign space for life sciences tenants.

Building for the biosciences

One thing that makes life sciences properties different from other work-space rentals, is that they tend to cater to specific stages of a company’s offering. At each stage, the amount of floor space, equipment, and the ratio of office to laboratory space will differ, with some companies requiring far more specialized (and costly) installations. 

For example, in the start-up phase, when the company is conducting their initial research and development, their requirements are often fairly generic. From a development perspective, this is attractive, because it means that the lab facilities that have been built out can easily be repurposed for another start-up’s use after the first vacates.

Late-stage companies on the other hand may require far more substantial investments into manufacturing and warehousing space, which also changes the footprint of their needs substantially. They also tend to need more specialized lab facilities that come with their own complex regulatory and safety considerations.

In almost all cases, buildings intended for laboratory use will need certain general upgrades as well. These include more powerful HVAC (heating, ventilation and air conditioning) systems and other structural changes, potentially pushing costs into multiple hundreds of dollars per square foot.

The life sciences outlook

Despite the higher costs associated with development or adaptation for life sciences usage, the outlook for this market in the US is exceedingly bright. PwC’s emerging trends in real estate 2022 report highlights the sector as a top contender in terms of both investment and development, as the demand for healthcare and biotech research continues to skyrocket.

This trend is holding up in other countries as well, with the Canadian government having committed to $2.2 billion in funding for biomanufacturing initiatives over the next few years, and the PWC Europe report listing life sciences as a top contender across the continent.

Taken together, this certainly paints a picture of an asset class that the savvy CRE professional can’t afford to ignore. But, given life science’s development and operational costs, the real challenge lies in finding the best investment strategies to take advantage of the trend.

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Based out of Greenville, South Carolina, NAI Earle Furman, along with NAI Columbia (South Carolina Midlands) and NAI Piedmont Triad (North Carolina) reported a bumper 2021, with a staggering 1,255 transactions completed and nearly $1.1 billion in sales and leasing over the period.

Community roots

For more than 35 years, NAI Earle Furman has been a fixture of the Greenville community, providing sound advice and top-notch services to clients across North and South Carolina. The firm, which was founded by Earle Furman Jr. in 1986, initially focused on industrial real estate, before expanding into office and retail.

After becoming an NAI affiliate in 1999, the company went from strength to strength, being named the top-ranked commercial real estate company in the Upstate by GSA Business in 2004. It’s an honor NAI Earle Furman has held onto every year since. 

Between 2012-2014, the company opened two new offices in South Carolina (Spartanburg and Anderson) before eventually partnering with NAI Piedmont Triad (Greensboro, NC) in 2017, and then with NAI Columbia in 2019.

Since then, the powerhouse trio has built up a portfolio that includes over 12.6 million SF of commercial property in North and South Carolina.

Outstanding achievement

Speaking to the company’s remarkable success, J. Earle Furman, Jr. said: “It truly is a joy to see this organization flourish and prosper year after year. Our people work hard every day, and to reach almost $1.1 billion in transactions is genuinely remarkable. I have seen this company come a long way over the last 35 years and know the future will bring us lots more growth and success.”

NAI Earle Furman’s CEO, Jon Good, added: “I am thrilled that we reached this impressive milestone. Our presence is far-reaching, and we continue to remain a leader in the commercial real estate landscape across all sectors.”

They were joined in celebrating the firm’s success by Peyton Bryant, Senior Brokerage Associate and Principal at NAI Columbia, and Robbie Perkins, Market President at NAI Piedmont Triad.  The two attributed the companies’ ongoing successes to the entrepreneurial spirit and strong client relationships the NAI Firms in the region have forged over the years.

Carolina dreaming

NAI Earle Furman’s industrial, office, and retail reports showed positive trends in the Upstate South Carolina area, with vacancy rates lower in most cases, and a strong uptick in industrial rental performance.

Heading into 2022, NAI Global remains confident that our firms in North and South Carolina will continue to impress, and to build on the rock-solid foundation of 2021. Or as NAI Piedmont Triad’s Robbie Perkins puts it: “[We are] proud to be a part of the NAI Earle Furman team. 

We need to celebrate our successes and thank our many clients for trusting us with their business. The best is yet to come.”

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As sustainability becomes a key piece of the corporate puzzle, CRE professionals are also increasingly required to be conversant with common energy and efficiency terms in order to negotiate deals with eco-savvy clients.

So, for this instalment of our ongoing CRE Terms blog we’re once again delving into the NAOIP 2017 Terms and Definitions document to help clarify some of the jargon. More specifically, we’re going to be looking at rating systems that measure a building’s energy efficiency and environmental impact.

Energy Star®

The Energy Star® program is a joint initiative by the U.S. Environmental Protection Agency (EPA) and the Department of Energy (DOE) to rate products and buildings in terms of their energy efficiency. If a building is “Energy Star qualified”, that means it’s been benchmarked against other similar structures and certified as being a top performer.

Green Globes®

The Green Globes® certification program offers a similar guarantee, with buildings rated between one and four “globes” based on their sustainability and environmental performance. Green Globes also offers guidance for developers and building owners working to bring their property up to specifications.

LEED® (Leadership in Energy and Environmental Design)

The LEED program falls under the U.S. Green Building Council (USGBC), a sustainability-focused non-profit that certifies buildings in terms of water and energy efficiency, air quality, and material usage.

To meet the standard of certification, buildings must score at least 40 points across categories ranging from water and energy management to carbon footprint, waste production, and occupant health and wellness.

Buildings then get sorted into categories based on score, with the highest being LEED Platinum (80+) and a score of 100 indicating the building is ‘net-zero.’

Selling sustainability

In the future, the trend towards sustainable development is likely to grow even stronger as various stakeholders become increasingly environmentally conscious and demand greater accountability from developers and businesses at large.

For the savvy CRE professional, being familiar with the ins and outs of these sustainability certifications is, therefore, an essential part of a well-rounded toolkit.

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One of the levers companies are using to achieve this is greener, healthier workspaces. According to a recent Forbes article, behemoths like Google and Amazon are pouring billions of dollars into new office spaces, and plan to up the appeal of these new offerings by incorporating green amenities and natural spaces into their design.

Biophilic design for productive workspaces

In addition to being more appealing for talent, greener workspaces can result in some solid gains in productivity. Workplace design specialists Convene, quoting from recent studies, say: “Biophilic design (when living green plants are integrated into office design) also has scientific backing. Workers exposed to greenery in their daily work lives report a 15% higher level of well-being, are 6% more productive, and are 15% more creative.”

They add that gaining these benefits doesn’t need to be complicated. Simple changes, such as adding a few visually “high-impact” plants and providing outside seating areas, can kickstart the process without the need for a massive outlay.

New standards for green

A less tangible, but equally important, consideration for green design is whether the building is “healthy.” In the wake of the pandemic, that means looking at ventilation and airflow, or, as Harvard Professor Joseph Allen puts it: “COVID-19 will prompt people to ask more questions about their workplaces—and will force the hand of employers and building owners. Foosball tables are no longer enough. The world finally has to pay attention to indoor air.”

He adds that, besides creating healthier workplaces, boosting air inflow is another factor in increasing productivity and cognition, for a more engaged workforce.

Sustainability driving up price and demand

For commercial real estate brokerages, there are tangible benefits to making these kinds of changes to office space, as well as aiming for sustainability and carbon-neutrality in new developments.

According to the latest Royal Institution of Chartered Surveyors (RICS) sustainability report, 55% of global CRE professionals surveyed say that demand for green and sustainable buildings has risen in their region. The report adds that many of those professionals agreed that those buildings were also fetching higher rent and sale price premiums, and that demand is currently highest in Europe.

A new green bottom line?

Overall, it’s likely to be a combination of incentives that will draw renters and workers back into office as we move into 2022. And while making the move towards green might not reverse the office slump in the short term, over a longer horizon, green initiatives should certainly be considered part of a robust CRE strategy.

Because what is certain is that, for at least some workers and companies, greener and healthier workspaces are going to be a must-have in the return to work negotiation.

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What is the metaverse?

The metaverse is – for now – a concept. The idea is that we will develop and engage with a vast number of digital worlds that are connected, and in theory move between them seamlessly for socializing, work, and entertainment – using interfaces like browsers, but also virtual reality (VR) headsets and other immersive tools.

Many companies are starting to think about how to expand their footprint into virtual spaces, and the idea of virtual offices is gaining traction. Virtual real estate assets are even selling for hundreds of thousands to millions of dollars, begging the question: Exactly how much will the metaverse impact real-world CRE assets?

The past and future of virtual assets

The idea of selling virtual space, and even entire virtual buildings isn’t a new one. Back in 2007, players in the virtual game world “Second Life” were doing exactly that – buying up virtual real estate and opening stores and businesses online. The difference is that back then, these “virtual assets” were clearly separate from the real world and weren’t exactly fetching the hefty prices they are now. They sold for a few tens of dollars to a few hundred.

In the post-pandemic world, with the prospect of blockchain and other key technologies on the horizon, the value proposition is a very different one. Many companies are reprioritizing their physical office space needs as employees adopt a work-from-home approach. The flipside of this is that workplaces are less close-knit and cohesive, making the idea of a virtual gathering space, like an online office, more appealing.

Virtual retail and real estate

The interest in virtual space and assets is also lining up with real-world applications in other ways, with some big companies, like Nike and even Walmart, planning online product lines in the metaverse.

On the real estate front, there are already brokerages and brokers moving into virtual space, in anticipation of the continued growth of metaverse assets. Venerable entities like Sotheby’s have also jumped on the bandwagon, opening a virtual version of their iconic London HQ.

While all of this activity indicates a lot of potential, it’s worth bearing in mind that there’s likely to be a lot of volatility too. Just like the highly speculative cryptocurrency market, sales of metaverse assets have already shown that they are largely hype-driven. And with hundreds of thousands of dollars changing virtual hands, there’s a high likelihood for buyers to get burnt.

CRE and the metaverse

For now, the real long-term impact of the metaverse remains to be seen. Estimates of the future value of metaverse assets range from $800 billion to trillions of dollars, but even the experts can’t agree about which scenario is most likely. Similarly, there’s little concrete evidence for whether this is all a passing real estate fad, or something that’ll be around for years to come.

From a CRE perspective, while it isn’t quite time to hang up your business suit and don a pair of VR goggles, it is worth noting that big changes coming in terms of VR and AR technology in general. Technological developments in these areas are already driving new approaches to how we develop and rent out physical properties, and to how we do business.

As CRE professionals, it’s these developments that are likely to be more deserving of our immediate attention. But, considering the big-name retailers and tech developers moving into the space, the metaverse shouldn’t be entirely discounted. Perhaps just treated with kid gloves until we figure out exactly what it’s going to be.

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