The ABC’s of Class A, B and C Office Buildings
An office building’s rating—Class A, Class B or Class C—gives brokers, investors, tenants and landlords a basic understanding of a building’s qualities. However, these classifications are subjective and often differ between markets. In other words, it’s all relative.Nevertheless, whether you are looking to lease space for a business or you want to add an office building to your commercial real estate investment portfolio, the rating system will help you compare and contrast the possibilities. Let’s take a look at the characteristics of each class of office building and the pros and cons that can help you decide which one is right for you.
Class A, Top of the Line
No one rides coach in a Class A office building. These buildings represent the highest quality in a particular market. They look good and usually have architectural features and interior design finishes that wow. And while most are fairly new construction, an older distinguished building can also be considered Class A.
But Class A office buildings are not only attractive. They perform better, too, with services that include state-of-the-art technology (reliable WiFi), powerful and efficient HVAC systems, high-tech security and fast elevators. In addition, many Class A office buildings offer desirable amenities such as covered parking, a coffee shop, concierge services, a fitness center and outdoor work space. These prestigious buildings are usually located in prime central locations and, therefore, are in hot competition for premier tenants.
Naturally, all of these qualities and conveniences add up to rental rates that are among the highest in a market. But if image is important to your business and you want the assurance of working in a well-managed property—and you can afford the rent—then Class A may be the best choice.
Class B, Average and Nice
If you think of office buildings along a bell curve, then Class B are right in the middle and make up the majority. They are “nice” buildings that were probably once Class A when they were new 10 to 20 years ago. So although they may not have the same high-end features as today’s Class A offerings, they are still fully functional and are often well-located, even if they’re not on a prime corner.
The advantage of Class B is that rental rates are lower than Class A, and they usually offer a work environment that is better than Class C. Therefore, Class B office buildings almost always are in competition for a wide range of tenants.
Offices usually have desirable tenant improvements, and while buildings in this category may have somewhat outdated design elements, they can still be attractive with well-maintained grounds and common areas. In addition, technology is typically upgraded in Class B office buildings so businesses can operate without interruption.
So if location and amenities are less of a concern for you—but an affordable price tag is a necessity—then consider a Class B office building.
Class C, Basic and Bare
For a business just starting out or in the early stages of growth when the budget may be limited, a Class C space could have a lot to offer. Generally speaking, these buildings are quite functional, but they simply do not look as nice and usually aren’t located in neighborhoods as attractive as Class A or B offices. Class C buildings are typically 25 years old or more, so they may need renovations, and their technology and infrastructure likely need updating. In addition, the buildings may not be professionally managed or well maintained. Consequently, tenant concerns might not be addressed in good time.
On the upside—because of these concessions, tenants may have more bargaining power when the time comes to negotiate rent and tenant improvements as part of a lease agreement. That’s the main reason why Class C could be a wise choice if you must stick to a budget and have the space necessary to grow.
The information contained in this article is general in nature and should not be construed as financial, tax or legal advice. As with any financial or legal matter, consult your tax advisor and legal counsel.
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