The Three Classes of Office Buildings
Not all office buildings are created equal – which is why a general classification system exists to categorize them by age, amenities, aesthetics, and general infrastructure. Commercial real estate brokers use these classes to prepare market data and justify the cost of leases within the building.
The highest-quality office spaces on the market are considered Class A. Generally speaking, these spaces are newly constructed and have been outfitted with top-of-the-line fixtures, amenities, and HVAC and technological systems. Class A buildings are aesthetically pleasing and have a notable presence in high-visibility locations, such as a city's central business district, notes the Building Owners and Managers Association International (BOMA). These spaces are normally maintained by reputable property management companies that keep them looking impeccable.
Height is another common characteristic of Class A buildings. Many high-rises fall into this category; spaces inside these structures tend to have higher ceilings as well. A large central lobby is also typical of buildings in this category.
Class A rental rates are typically higher than the city’s average rents, and tenant concessions, such as reduced fees or consent to sublease, are rare because the premier space is competitively sought after. Offices in these buildings often popular among high-profile, white-collar companies, such as financial institutions and law firms.
Class B properties are considered decent as far as office spaces go. These buildings usually don’t have the same high-quality fixtures, architectural details, and impressive lobbies as Class A spaces, but they are generally nice structures with fully functional facilities.
Their locations, building systems, and property managers are described as average to above average. Therefore, Class B office space tends to command "average" market rent. The majority of Class B buildings are fewer than four stories tall and are often found in the suburbs or on the edge of large financial districts.
Another factor that separates Class A and B buildings: age. Class B buildings are typically older than Class A buildings and may be experiencing some deterioration. Some buildings start out with a Class A rating but are downgraded after 10 years, or once signs of wear-and-tear become apparent.
Class C commercial office spaces are the poorest-quality structures on the market. They tend to be located in the least desirable areas of cities and are usually in need of major repairs or complete renovation. The need for significant repairs or upgrades is typically the result of the building's age, as Class C properties are generally more than 20 years old.
Some Class C properties remain occupied, commanding lower rental rates and attracting tenants with smaller operations that cannot afford nicer spaces or that do not need their businesses to be located in centralized hubs. Other Class C buildings are sold as rehabilitation opportunities.
With some improvements and repairs, a Class C building can be upgraded to Class B, though it is unlikely to ever achieve Class A status, due to its location and age.
Of course, pricing office space is not an exact science; a variety of factors go into it, from the state of the local real estate market to the amenities offered by the building. For that reason, official as they sound, these classifications are somewhat subjective—something to bear in mind in lease negotiations.