The 3 Classes of Office Buildings: What Do They Really Mean?
When it comes to office space, it’s pretty clear that the glamorous downtown tower with imported Italian marble in the lobby and concierge/valet services is classified as “Class A” in the world of commercial real estate.
At the same time, it probably comes as no surprise that the no-frills space with its paneled walls and fierce fluorescent lighting located in a less-than-prime part of town is likely designated “Class C.”
However, classifying office space isn’t always this cut and dry. What about all the space in between these extremes? And what do the “Class A, B and C” rankings really mean and who determines them?
It’s more an art than science
Despite attempts to classify the quality of space, there’s really no hard-and-fast official grading system, and brokers in their individual markets don’t operate under a single set of definitions for each class.
“It’s all subjective,” said Coy Davidson, senior vice president at Colliers International in Houston, to VTS. “Maybe BOMA has a standard it goes by, but it’s still totally subjective by whoever puts the listing in.”
Although not perfect, we need a ranking system
The building classification system varies significantly between markets. For example, a Class A office building in Omaha won’t be comparable to a Class A building in downtown Los Angeles. That’s why it’s important that buildings be viewed in the context of their specific markets. However, that’s not an exact formula either, because classifications even vary within a city itself -- from submarket to submarket and downtown to the suburbs.
“I lease a couple of suburban buildings considered Class A in a small submarket, but if you stuck them in a bigger Houston submarket they would probably be Class B buildings,” Davidson said. “Also, there might be a little boutique building that’s just knock your socks off, but it’s only 20,000 square feet and doesn’t have the same amenities as a 1-million-square-foot office tower.”
Davidson points to other challenges, including the many buildings that straddle the fence between classifications, and the fact that a landlord may have a “more generous opinion of his building” than the market.
Consensus is that even a loosely designated classification system helps brokers, landlords, investors, and tenants compare buildings that compete for similar types of users.
While it varies from firm to firm, criteria that brokers typically use to classify buildings include: age of the building, location/accessibility, infrastructure, technological capabilities, rental rates, market perception, quality of the HVAC system, how well it’s maintained, finishes, tenancy, ownership, and of course, amenities.
Basic rules of thumb
While there’s no definitive formula for each class, brokers have a general consensus as to what’s considered Class A, B, and C office space, so here’s a rundown (with a little help from BOMA):
What is Class A office space?
These are the “most prestigious buildings competing for premier office users with rents above average for the area,” and they have a “definite market presence.” Class A buildings have a prime central location with exceptional accessibility and are usually of significant size. Class A buildings aren’t always newly built; older distinguished buildings with outstanding ownership in prime markets are often Class A due to their market presence.
Class A boasts high-end tenant improvements and first-class finishes, high-tech security, the latest in elevator and HVAC systems, and state-of-the-art technological capabilities. In other words, these buildings are built to impress. The hottest in amenities can include concierge/valet services, cafes, food courts, restaurants, daycare centers, game rooms, on-site covered parking, gyms, showers, lounges, bike storage and roof terraces.
What is Class B office space?
Class B buildings “compete for a wide range of users with rents in the average range for the market.” They’re generally nice, fully functional buildings but don’t typically boast the same high-end fixtures, architecture and striking lobbies as Class A buildings. They’re well-located in solid markets but maybe not on the prime corner. They’re typically older but still have higher-quality tenant improvements (although finishes may be somewhat outdated). Maintenance and upkeep are solid. HVAC and elevator systems are functional but not top of the line. Technological capacity is adequate. They may have on-site parking but it’s uncovered.
What is Class C office space?
Buildings competing for tenants requiring functional space at rents below the average for the area.