Navigant Research Blog

Despite Bleak Chinese Construction Outlook, Still Hope for Green Buildings

— July 27, 2015

According to second quarter gross domestic product (GDP) data released by China, the miraculous decades-long growth of the Chinese economy is continuing. In reality, though, China’s GDP figures range in the territory of unreliable to laughable. As publicly traded companies announce their second quarter earnings, a picture of a more stagnant Chinese economy is emerging, and for construction, that picture is bleak.

How Low Can You Go?

United Technologies share price tumbled on July 21 (before receiving a little bit more bad news) as net sales and net income fell and performance failed to meet analyst expectations. The company’s Otis elevator and escalator products were projected to experience a 5% increase in orders in China for the year. Instead, the company recorded a 10% decline. The fall in elevator orders is a direct result of the fall in Chinese construction.

Unfortunately, construction in China does not appear to have a bright future. China’s government-led construction drive gobbled up massive amounts of commodities. In 2014, the country accounted for 40% of the world’s copper consumption, despite having just 20% of the world’s population. In just 3 years, China used more cement than the United States did in the entire 20th century. But, commodity prices have dropped, highlighting China’s cooling construction market. The Bloomberg Commodity index has fallen to its lowest level since 2009.

Darkest before the Dawn

Despite these construction headwinds, there is hope in high-performance buildings. The Chinese government is pushing green buildings, in part as a response to the country’s urban air pollution problem. Even though the construction boom has faded, advanced controls and building energy management systems are still poised for growth. As the focus shifts from completing construction to ensuring efficient operation, there is an opportunity for wider adoption and more sophisticated systems.

Other players in the building space are viewing China as a growth opportunity. Johnson Controls noted increased revenue on market expansion in China. Indeed, the company is investing in the Chinese market in anticipation of significant growth opportunities. Honeywell’s Automation and Controls Solutions (ACS) experienced double-digit growth in China in the second quarter of 2015. As China’s construction market continues to mature, the break-neck growth that has been characteristic has slowed substantially. The focus is shifting from more buildings to better buildings, creating opportunities for solutions that improve operational efficiency.

 

The Real Estate Services Shopping Spree

— June 12, 2015

You would be forgiven for thinking that CBRE stands for Can’t Buy Rapidly Enough. The company (which actually stands for Coldwell Banker Richard Ellis as a result of an interesting history of spinoffs, mergers, and acquisitions) is the world’s largest commercial real estate service and has been on a recent acquisition binge. In March, CBRE announced a definitive agreement to acquire the Global Workplace Solutions business that Johnson Controls, Inc. announced it would divest last year. Two weeks later, CBRE announced the purchase of Environmental Systems, Inc. (ESI), an energy management and systems integration provider.

Global Workplace Solutions offers services that help companies operate facilities more efficiently, optimizing real estate performance and employee productivity, particularly in the industrial, life sciences, and technology sectors. These services include everything from site selection and design, planning, and construction management to standardizing maintenance procedures and performing inventory management.

ESI, on the other hand, designs, installs, manages, and supports integrated building automation systems and building energy management systems. In 2012, ESI was selected by IBM to manage the energy use of the 50 largest federal government buildings, linking the automation systems of the buildings together on a cloud-based platform to provide enterprise-level management.

The Complete Package

Both acquisitions highlight how providing a complete portfolio of services for corporate clients is becoming increasingly important for CBRE and the commercial real estate service industry as a whole. With growing demand for green-certified commercial office space, as well as increasing awareness of the benefits of energy efficiency in reducing operating expenses, commercial real estate service providers are moving to expand their capabilities with clients. Indeed, DTZ and CoreNet Global announced a partnership that incorporates CoreNet Global’s benchmarking service into DTZ’s commercial real estate services portfolio.

Real estate services companies have historically played a less central role in energy efficiency decision-making, energy management, and energy benchmarking than other infrastructure-focused players such as energy service companies (ESCOs) and HVAC contractors. But, that seems to be changing, as corporate clients are beginning to view energy information to be as important as the other information typically provided by real estate service companies. Though CBRE’s shopping spree may be over for now, we will likely see more acquisitions by real estate services companies to fill out their service portfolios.

 

A Conversation with Sharon Alton, Executive Director of USGBC Colorado

— September 3, 2014

On August 13, the U.S. Green Building Council’s (USGBC’s) Colorado chapter held a commercial real estate forum to highlight green building projects in the state, particularly Denver’s recently reopened Union Station, which is pursuing LEED Gold certification. 

Following the event, I sat down with USGBC Colorado’s executive director, Sharon Alton, to discuss the state of green building and LEED in Colorado.

Madeline Bergner: Are any particular commercial building types adopting LEED more than others?

Sharon Alton: Colorado actually mirrors the rest of the country.  Office is by far the highest building sector percentage of LEED-certified buildings, and I think the reason for that is that it’s the most common one.  LEED for homes, either single-family or multi-family, comes in second behind office, and LEED for schools is third.  We have a big conference every November, the Green Schools Summit, which highlights green building in schools.

MB: What are some of the drivers of energy efficiency in new construction and retrofits in Colorado?

SA: A lot of investors are demanding LEED certification for buildings in their portfolio, so that’s definitely a factor.  Technology is the other key one.  As technology is improving really quickly, it’s just going to make the whole green building process that much easier and more economical.  Ten or 12 years ago, certain aspects of green building technology were more expensive, and they’re not now because they are more efficient and new technologies have started to drive down the cost.

MB: On the other side, what are some barriers to green building and LEED certification?

SA: If decision makers don’t adopt LEED early in the planning process, costs can increase.  A green building doesn’t need to cost more than a non-green building.  However, many times, because people think about pursuing LEED too late in the process, then it does end up costing more, and that’s what gives green building a negative reputation.  As a result, part of what we need to do is educate people and explain to them that they need to adopt this early on in the process, and therefore costs won’t need to increase.

MB: Is green building activity in Colorado mainly concentrated in Denver? What other kinds of projects are going on around the state?

SA: Since Denver is the most dense, populated area of the state (as well as other areas along the Front Range), that’s where you’ll see the most green building.  However, there are great projects going on throughout the state.  We have a group in Aspen that promotes green building there, and there are some interesting projects in the area.  USGBC Colorado gives green building awards, and we received some great award applications from Grand Junction, Colorado Springs, and other parts of the state.  You’ll find green building all over, but along the Front Range is where most the green building is, purely because it’s where most of the buildings are.

MB: At the forum, one panelist said that the ultimate goal of USGBC and similar organizations was to no longer exist.  Is this how you see the future of green building?

SA: If we get to a point where everyone is doing sustainable things and utilizing green building, that’s going to become the status quo.  As we try to push the envelope and make things greener and greener, and get to net zero, LEED Platinum may end up someday just being the code that all buildings have to build to.  So then you wouldn’t call it a LEED building, it would just be a building.

 

In New York, Greening Older Buildings

— July 21, 2014

Building energy efficiency has reached the mainstream.  Clean energy technologies have become so common that technical training in renewable energy and energy efficiency retrofits is becoming more and more accessible.

Green City Force (GCF), a Brooklyn, New York-based non-profit, has trained nearly 300 young adults living under the poverty line in New York City for careers in the green economy with the group’s Clean Energy Corps.

Clean Energy Corps supports a variety of projects related to energy and efficiency, including energy audits in low-income homes, urban agriculture, and energy efficiency retrofits.  The corps provides its members with an academic and technical training program to prepare them for college; the program leads to certification for entry-level work in energy efficiency and includes GPro, a nationally recognized certification in building science.

Retrofitting

One of the major partners for GCF, and for Clean Energy Corps specifically, is the New York City Housing Authority (NYCHA).  More than 8.4 million people reside in New York City, and 615,199 of them are served by the authority’s Public Housing and Section 8 programs.  This represents 7.4% of the population of New York City.  Together, both programs cover 12.4% of the rental apartment stock in one of the most expensive cities in the world.

NYCHA’s property portfolio is equally impressive and rivals commercial housing developers.  It oversees 334 developments, including 2,563 buildings and nearly 178,000 apartments.  In contrast, the Chicago Housing Authority has 21,000 apartments in 128 properties.  Los Angeles has 2,491 apartments across a portfolio of 93 properties.   Only 20% of the developments in NYCHA’s portfolio are less than 30 years old, and one-third of the authority’s developments are more than 50 years old.  Modern buildings are built with energy efficiency in mind, but older buildings have more room for improvement.

The More the Better

GCF develops service projects in partnership with NYCHA, city agencies, and other non-profits.  One example is the Love Where You Live Challenge, which bring corps members together with fellow NYCHA residents to reduce energy use in homes.  Corps members gain experience and skills, while the authority reduces its energy costs.  NYCHA spends $535 million annually on utilities.

NYCHA is not the only public agency using innovative approaches to promote energy efficiency.  The Washington Metropolitan Area Transit Authority (WMATA) recently awarded Philips Lighting a 10-year lighting performance contract to upgrade lighting across 25 parking garages to LED lighting.  Instead of paying out of pocket for the 13,000 fixtures, WMATA will share the savings in energy costs with Phillips over the 10-year period.

For disruptive technologies such as energy efficiency, the more business models in the market, the more accessible the clean energy economy becomes.

 

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