The Three Classes of Office Buildings
Real estate brokers price office space based on these categories
Not all office buildings are the same, 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 prices of spaces within office buildings. Because many factors go into pricing office space, some experts argue that the classifications are subjective.
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 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 are considered Class A buildings and the office spaces inside these structures tend to have higher ceilings as well. A large central lobby is also typical in 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 premier Class A space is competitively sought after by some of the country's most well-known and largest firms. These spaces are popular among banking, real estate, and law firms.
Class B properties are considered "average" 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 buildings 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 consideration that separates Class A and B buildings is 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 renovations. 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 central 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 achieve Class A status, especially considering its location and age.