The Hard Numbers Behind the Value of Healthy Buildings

• Healthy premium: New studies are showing just how much more valuable a healthy office building can be.

• Lab worked: The struggling biotech industry is putting even more strain on the overbuilt life science real estate market.

• Baltimore’s bargain: A well-known office tower in Downtown Baltimore has been sold out of receivership at a huge discount.

• Multifamily centralization: Streamlined operations are helping apartment owners cut costs, reduce risks, and improve resident experiences. Sign up

Space Planning & Workplace

The Hard Numbers Behind the Value of Healthy Buildings

Two decades ago, California’s Sustainable Building Task Force tried to put numbers on something the real estate industry had long suspected—that healthier, greener buildings are worth more. Their report argued that a small upfront premium could deliver big lifetime savings by reducing energy use and improving tenant productivity. At the time, those softer benefits were hard to measure, but the logic resonated.

Now the data is finally catching up. Modern HVAC systems, indoor air sensors, and post-occupancy studies have shown that healthier offices can lower absenteeism and command higher rents. Tenants are increasingly willing to pay more for WELL or Fitwell-certified buildings, seeing them as a way to attract and retain talent. Even in a soft office market, landlords with health-focused buildings are finding they can lease space faster and at a premium.

What used to be seen as an intangible perk is now a quantifiable asset. Retrofitting older offices to meet these standards can be expensive, but the return is stronger occupancy and long-term resilience. As competition heats up in oversupplied markets, the value of healthier buildings is no longer a question of marketing, it’s a leasing strategy backed by hard numbers.

Overheard

Life Science Properties Face Softening Market Amid Biotech Pullback

The rapid expansion of biotech-driven lab real estate in key markets such as Boston, San Diego, and the Bay Area is facing a pronounced slowdown. Leasing activity, which surged during the pandemic and into 2022, has declined significantly, with vacancy rates in some premier clusters now approaching 30 percent. This softening is largely driven by tighter venture capital funding, particularly for early-stage firms, coupled with an oversupply of speculative lab developments and an increase in sublease availability, which together are exerting downward pressure on rents and absorption rates.

For life science real estate, the slowdown represents a market correction with tangible implications for landlords and investors. Properties designed specifically for lab use like wet labs, clean rooms, and other specialized facilities, carry high infrastructure costs that cannot easily be repurposed, leaving landlords with underutilized inventory and constrained revenue streams. Even newer, high-quality buildings are experiencing challenges unless they are located in established innovation hubs with strong tenant demand. The combination of high vacancy and lease uncertainty is prompting a reassessment of underwriting assumptions and investment strategies across the sector.

Despite these headwinds, segments of the market remain resilient. Established clusters with robust infrastructure, proximity to research institutions, and a track record of long-term tenants continue to attract capital and sustain occupancy. Additionally, demand for biomanufacturing facilities, particularly for emerging therapies, is providing some offset to broader market softness. While secondary markets and speculative developments are under pressure, landlords in prime locations with flexible, well-equipped spaces are positioned to navigate the current downturn and capture long-term value as funding stabilizes.

Nationwide Discounts Mount for Struggling Office Properties

Baltimore’s 300 E. Lombard tower is set to sell for just $6.5 million, a steep drop from the $38.3 million it fetched in 2015. The 19-story downtown landmark, once anchored by tenants like First National Bank and Ballard Spahr, entered receivership after years of financial struggles and rising vacancies. A state lease deal that could have stabilized the property fell through in early 2024, leaving the building with nearly half its space empty and a nonperforming CMBS loan balance of nearly $23 million.

The bargain-basement sale comes as downtown Baltimore faces a record office vacancy rate of 30%. Major employers such as T. Rowe Price and leading law firms have left the city’s traditional core for new developments in Harbor Point, Harbor East, and the Baltimore Peninsula, accelerating a cycle of declining occupancy, shrinking valuations, and reduced tax revenue. Once a cornerstone of the central business district, 300 E. Lombard has become another symbol of the area’s mounting office distress.

This steep discount is not unique to Baltimore. Across the country, older Class B and C office properties have borne the brunt of the post-pandemic downturn, struggling to compete with modern, amenity-rich developments and facing financing challenges as values collapse. From San Francisco to Boston, distressed sales, stalled conversions, and hollowed-out central business districts have become the norm, with secondary office assets trading at fractions of their past values and leaving cities to grapple with the fiscal fallout.

Office-to-Residential Playbook

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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