The office market has long been a struggling commercial sector. But one bright spot had been lab space: Investors and tenants alike craved life sciences and lab space. Now even this slice of the office sector is struggling.

CommercialEdge, in its September office report, said that investor appetite for lab space has crated after this sector’s peak following the pandemic.

In 2022, the country saw $6.2 billion in life science sales across 62 properties. These sales came with an average price of $890 a square foot. Those are strong numbers.

But in 2023? Sales volume in the life sciences sector fell to $1.8 billion over just 20 transactions. Properties traded at a lower $631 per square foot, too. And so far in 2024, CommercialEdge has logged just three sales of life science properties in the country.

The news isn’t all bad, though. CommercialEdge says that some of this lessened demand is a result of a building boom in the life sciences sector. Since the start of 2020, 33.5 million square feet of lab space has been delivered across the country, and an additional 26.4 million square feet are currently under construction.

CommercialEdge researchers predict that once the excess space in this sector is filled, investors and tenants will again flock to life sciences and lab space. As CommercialEdge says, most life science work remains immune to remote and hybrid work. The company predicts, too, that venture capital dollars should flow again to the life sciences space as interest rates fall.

Because of these factors, CommercialEdge says, life science should remain one of the top-performing office subsectors over the long run.

“Oversupply isn’t a unique problem within the office sector, but there is currently too much space in life sciences due to recent deliveries,” said Peter Kolacyznski, director of CommercialEdge, in a statement.

“Unlike traditional office space, the long-term fundamentals for life sciences remain solid,” Kolaczysnki said.”Still, it will take longer than originally anticipated for the space to be absorbed, as these projects are delivering into markets with more availabilities.”

Overall, the national office vacancy rate stood at 19.4% in August, according to CommercialEdge. That is up 200 basis points on a year-over-year basis. Vacancy rates have risen in almost every market during this time, CommercialEdge said.

A total of 22,823 square feet of recent leasing activity has been arranged at Centre II, a three-story, 54,696-square-foot office building just south of downtown Austin, Texas.

The five deals include a combination of new leases and renewals that were signed over the past six months.

Casey Ford with CBRE in Austin represented the landlord, SRC, in all lease negotiations.

Located in Austin’s Southwest submarket at 3101 Bee Cave Rd., Centre II was acquired by SRC in 2022. The property features ample parking, newly renovated common areas, easy access to major thoroughfares and local restaurants, and beautiful views of downtown Austin.

The property has attracted tenants from various industries, including facilities services, recruitment, financial advisories and legal. The largest lease recently signed was a renewal from Abaco Systems, a computer hardware manufacturer headquartered in Huntsville, Alabama. The company occupies 11,049 sq. ft. at Centre II.

 JLL Capital Markets announced today it secured the refinancing for Denton Distribution Center, a recently delivered, Class A industrial park in Denton, Texas – one of Dallas-Fort Worth’s fastest-growing industrial submarkets.

JLL represented Billingsley Company to secure the fixed-rate loan, which was used to refinance the construction debt.

Denton Distribution Center features two cross-dock industrial assets that are 451,384 square feet and 448,386 square feet, respectively. The property is currently fully leased to a total of five tenants – all on long-term leases. Additionally, the park features top-of-the-line functionality with 32-foot clear heights and flexibility to attract multiple different user types with suite sizes ranging from 60,000 square feet to more than 250,000 square feet.

Its strategic location on Highway 380, just west of Interstate-35, provides unrivaled accessibility to the Dallas-Fort Worth metroplex, leveraging southbound I-35 W (Fort Worth) and I-35 E (Dallas) for seamless connectivity. Furthermore, going northbound on I-35 provides direct access to multiple major population centers including Oklahoma City, Kansas City and Minneapolis. Setting itself apart from neighboring regions, the location also provides low mill rates and affordable workforce housing, making it attractive to operate businesses in the area.

The development and leasing of Denton Distribution Center was led by George Billingsley of Billingsley Company.

The JLL Debt Advisory team was led by Dallas Office Co-Head and Senior Managing Director Campbell Roche, Director Kristi Leonard and Analysts Jordan Buck and Aaron Craig.

Hopewell Development, in collaboration with MBK Industrial Properties, celebrated the groundbreaking of Lakeside Business Center, a new industrial development in the Flower Mound, Texas, area.

Scheduled for completion in the summer of 2025, this project will introduce two Class-A distribution warehouses totaling 123,910 square feet to the submarket. 

These new buildings will be available for sale and lease through Lee & Associates.

The development is located on the southeast corner of the prominent intersection of Lakeside Parkway and Gerault Road. Hopewell Development acquired the land for this project in January 2024 through an off-market deal sourced by Alex Wilson.

While owners, developers, and builders overall continue to adopt more environmentally sustainable practices, they still need to be proactive and vigilant about ever-increasing scrutiny from both investors and regulatory bodies. Sustainable and responsible practices are worthwhile in themselves, of course, but especially in an era of increased ESG mandates they are crucial for ensuring profitable and successful projects.

From conception, owners and developers can evaluate design, engineering, and construction options from a range of angles, such as building costs, scheduling projections, and difficulty of execution. This involves hard questions, including some fundamental ones.

It’s often said that the most sustainable building is the one you don’t build. However, is it better to build a new Net-Zero building and tear down a poorly performing building, considering its embodied carbon? Or is adaptive-reuse the answer? Or is it better simply to bring specific aspects of a building within local codes? Where a project lives will also impact priorities from cost and sustainability perspectives—which is to say nothing of individual organizational goals.

Ultimately, owners need to make decisions based on increasingly complex sets of data—and often need to navigate mandates that may appear at first to cross purposes, such as cost and sustainability. In other words, what is built and how it is built are one thing. How much it costs and how it can be done most efficiently are usually quite another. Long after owners, architects, and engineers determine the environmental impacts of a project, there continues to be project risks and pricing concerns that are tied to decisions related to sustainability. A transparent, cost-effective, long-term project and cost management approach is crucial.

Each project presents a distinct set of environmental challenges, and while sustainability considerations are undeniably important, the financial feasibility of a project or property also remains of paramount importance. If a ground-up or renovation project doesn’t pencil out, its sustainability goals become moot because the project won’t move forward. At the very least, a building won’t maximize its utility across its lifecycle, which benefits neither the people who use it nor the owners and investors. Similarly, owners need to be intentional about upgrades to older buildings to meet increasingly stringent and punitive codes, as well as to ensure they’re future-proofed to the degree that’s possible.

Challenges include the financial burden on property owners, the need for innovative retrofitting solutions, and the pressure to maintain property value while complying with regulations. After the design and construction considerations are planned, there is still a significant effort needed to ensure that all sustainability goals are met, the project team is built to address them, and the schedule and budget can accommodate them.

A project needs to have clear benchmarks in mind and ensure that materials, building practices, and the finished product are aligned to hit compliance goals or incentive targets. From a carbon perspective, one approach is to interrogate carbon quantities to look for potential changes at the design stage to reduce the impact. For example: How many times will an owner or occupier need to replace the material? What is the anticipated maintenance schedule and costs?

The focus isn’t just on minimizing costs; it’s about more involved cost-benefit analyses that assess the long-term financial implications of sustainable features. The approach should ensure sustainable options fit within the budget. This could involve evaluating construction methods that balance environmental benefits with cost-effectiveness, as well as lifecycle costing, which considers maintenance, repairs, and energy consumption.

Overall, resource and cost management are particularly important facets of managing projects compliantly and responsibly. This efficiency is crucial for property owners seeking to adopt sustainable practices without compromising the business side of a project. Ultimately, sustainability and project profitability are intertwined. By overseeing the alignment of the project’s environmental goals and diligently managing compliance, owners and developers can mitigate risks and enhance the outcome of a project.

Oliver Fox, is a Senior Director based in MGAC’s Washington, DC office and has more than 20 years of experience providing pre-construction and construction project control services for a variety of project types and sectors including vertical and horizontal construction.

Lone Star PACE helped arrange $40 million in C-PACE financing for the revitalization of ViVa Center, a 2.3-million-square-foot technology hub in Houston, supporting the development of data centers aimed at driving the growth of AI.

The 774,000-square-foot facility at 11445 Compaq Center West Drive is part of the recently rebranded ViVa Center, which was originally the headquarters for Compaq Computer and later acquired by Hewlett-Packard Enterprise. This turnkey data center will cater to hyperscale users in the cloud computing and artificial intelligence sectors.

Financing proceeds will be used to install sustainable building components to Phase 1 of the data center development. Improvements include energy-efficient windows, LED lighting, advanced HVAC systems, and high-efficiency plumbing upgrades.

C-PACE allows property owners to access low-cost, long-term financing for energy and water conservation systems at commercial buildings. Property owners can use C-PACE to finance new construction, building retrofits or recapitalizations.

Nuveen Green Capital served as the capital provider for the project, which involves retrofitting an existing building. Phase 1 is scheduled for completion this fall.

At full build-out, the ViVa Center development will offer 250 megawatts of power, a dedicated chilled water plant and a natural gas pipeline for energy generation.