Commercial Real Estate Blog

Palo Alto has announced that any commercial construction greater than 25,000 square feet will require Green Building Council verification. That move makes it the first south bay city to codify green building. While many new projects coming out of the ground today seek LEED certification, the fact is that ultimately the increased expense of LEED building, at least for the first few years, will be something which will affect the land costs a developer can afford to build. Ultimately, it is the tenants which much demand LEED buildings, otherwise the only difference to a developer is that they are delivering a building at a higher cost. If tenant’s do not demand LEED space and are prepared to pay for it, then mandating LEED does nothing more than reduce the land cost a developer can pay.

The mandate however is not something that will bring commercial construction to a halt. It will simply take a few years to work out as ultimately the tenant demand for LEED space will materialize one way or another; whether voluntary or driven by market forces. Until then, developers will continue to build but it will just take more to make a deal to pencil.

As part of San Jose Mayor Chuck Reed’s “Green Vision” Plan, the city has laid out a set of 10 goals it looks to achieve in 15-years time. One of those goals is the development or rehab of 50M square feet of commercial structurs in 15-years. A lofty goal for sure, and one that may present some difficulties in being achieved if rental rates do not continue their ascent and the weakness of the US dollar does not continue to create further upward pressure in construction material costs.

Nevertheless, it will be interesting to watch the continued development of the city and conversion and redevelopment of many 1980’s era R&D structures for higher density, attractive, green structures.

The 10-item Green Vision Plan also contains the following goals:

1. Create 25,000 Clean Tech jobs as the World Center of Clean Tech Innovation
2. Reduce per capita energy use by 50 percent
3. Receive 100 percent of our electrical power from clean renewable sources
4. Build or retrofit 50 million square feet of green buildings
5. Divert 100 percent of the waste from our landfill and convert waste to energy
6. Recycle or beneficially reuse 100 percent of our wastewater (100 million gallons per day)
7. Adopt a General Plan with measurable standards for sustainable development
8. Ensure that 100 percent of public fleet vehicles run on alternative fuels
9. Plant 100,000 new trees and replace 100 percent of our streetlights with smart, zeroemission lighting
10. Create 100 miles of interconnected trails