Class A Commercial Real Estate Definition

WHAT DOES A CLASS “A” BUILDING MEAN?

WHAT ARE THE DIFFERENCES BETWEEN CLASS A, B AND C BUILDINGS?

 

When looking for new office space, a tenant will quickly realize most buildings are classified into categories:  Class A, B and C.  The factors that determine a building’s class vary in each market, so a Class A office building in a major urban city will be much different than a Class A office building in a small rural town.  Likewise, Class A building in metropolitan Detroit may not meet the same criteria as Class A building in Chicago or New York City.  There are no definitive formulas used to classify a building, but a general definition for each class is provided here:

Class A

Class A buildings are the most prestigious buildings with the most amenities in the best locations. They generally are the most attractive buildings built with the highest quality materials and construction methods. Additionally, these buildings usually have a professional manager, good access, and are typically located in highly visible areas on high traffic streets.  Due to their exceptional quality, Class A Buildings are usually leased to reputable tenants at the highest rental rates in the market.

CRITERIA

  • High-rise building in prime central business district
  • A flagship building in its market
  • Architecture – Concrete and steel construction, distinctive design, attractive look, superior exterior finishes on the curtain wall, superior interior quality finishes in main lobby and common areas, including elevators and washrooms. Fairly recent construction or very well maintained and/or recently renovated building. Well-designed and good-size layout to accommodate one or several tenants on the same floor.
  • Strong identifiable location (well known address)
  • Convenient access (public transportation, etc.)
  • Managed by a professional firm
  • Premier tenants
  • Highest rental rates
  • Strong market presence
  • State-of-the-art systems that meet industry standards automated mechanical, electrical and safety and security systems. High capacity back-up power system.
  • Elevators – Sufficient number of elevators for the number of floors and building population.
  • Environmental – Certification (BOMA, Energy Star, LEED). Responsible sustainability practices in place.
  • Security 24/7 – controlled access system, camera monitored. For smaller buildings or those located in outlying areas, access control system in place as well as alarm system with off-site monitoring.
  • Built by reputable developer and contractor.
  • Parking – Sufficient private and public parking to accommodate tenants and visitors. 24/7-access for building tenants with security controls in place. Bike stands and electric vehicle charging stations have become the norm.
  • Tenant services – Experienced and professional manager providing centralized tenant service call system, including maximum response time, concierge services, tenant relationship program, regular tenant activities such as barbecues and holiday breakfasts, new tenant welcome committee, etc.
  • Amenities – Enclosed weather protected walkway connection, conference center, fitness center, service-oriented retail such as convenience store, cafeteria/ food court type restaurants, dry cleaning services, ATM and Wi-Fi. For stand-alone buildings not located downtown, cafeteria/food court restaurants and coffee shops provide above-average services to tenants.

Class B

These buildings are a grade below Class A.  Generally, they are slightly older buildings with good management and quality tenants.  It is not uncommon for value-added investors to target these buildings with the intention of renovating them back into Class A buildings.  Class B buildings are well maintained overall and quite functional. Class B office buildings commonly have an acceptable curtain wall finish, adequate (but not state of the art) mechanical, electrical and safety and security systems, and a mid-quality level of interior finish. Class B buildings compete for a wide range of users at average rental rates for their market area

CRITERIA

  • A grade below Class A
  • Slightly older buildings
  • Good management, quality tenants
  • Building finishes – Fair to good
  • Good quality systems – Not at Class A level
  • Can be targeted by investors planning renovations to restore them to Class A
  • Well maintained – Functional
  • Average rental rates

Class C

This is the lowest grade for useable office buildings. These office buildings are generally older and may be located on less desirable streets in older sections of the city, for example. Many of these buildings usually have higher than average vacancy rates for their market. Older, less desirable architecture, limited infrastructure and antiquated technology define these buildings. For these reasons, Class C buildings offer lower rental rates and can be more difficult to lease. Many times these buildings are targeted for re-development. The curtain walls and the mechanical, electrical and safety and security systems of Class C building are generally dated, and the quality of finish is often below average. These buildings attract tenants who sign short-term leases for functional space at below average rental rates.

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Class C

Class C

 

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CRITERIA

  • Lowest grade for useable office buildings
  • Older office buildings
  • Located on less desirable streets in older sections of the city
  • Higher than average vacancy rates for their market
  • Less impressive architecture
  • Limited infrastructure

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  • In need of extensive renovations
  • Obsolete technology
  • Lower rental rates
  • May be difficult to lease
  • Often targeted for re-development
  • Tenants requiring functional space

The above descriptions are general guidelines for building classifications, although no formal standard exists. Probably the most important point to remember is that buildings are classified relative to other buildings within their market. An experienced commercial real estate specialist will first determine the Class A buildings in a market by their highly desirable locations and amenities, and then classify other buildings in the market in relation to the Class A buildings.

How to Distinguish Among Class A, Class B, and Class C Buildings (2020 Edition)

Knowing the differences among Class A, Class B, and Class C office buildings will help you narrow down your search for new office space. Though determining building classifications isn’t an exact science, building class usually denotes the general condition of a commercial property and indicates quality of location and amenities. Conventionally, the better the “grade” or classification, the more desirable the property, but as we’ll see, your business’s needs mostly define desirability.

Basically, if you’re looking for the best that commercial real estate has to offer, you’ll look at Class A buildings. If you have a lower budget and just want functional space to work in, you will go see Class C properties. If you can afford average rental rates and want something a little nicer than Class C, you’ll want to consider Class B buildings.

Of course, there’s more to it than that. Let’s review the basics.

Class A Buildings: The Cream of the Crop

Without fully knowing what Class A buildings are, you can quickly ascertain that they’re the best in breed commercial buildings can offer. Typically, Class A buildings are the newest, most modern high-rises on the market, with “high-quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence,” according to the Building Owners and Managers Association International (BOMA).

What is a Grade A office building?

Sometimes, “Class A” office buildings are instead called “Grade A” office buildings. In metropolitan areas, Class A buildings tend to offer large scale commercial spaces in the most desirable neighborhoods. That means they command top rental rates, too.

As a result, the commercial tenants competing for Class A space tend to be well-established, category leaders in their industry. Large financial institutions, ad agencies, law firms, and tech giants usually compete for Class A spaces. Here’s why. Besides boasting an aesthetically pleasing interior and exterior, Class A buildings have:

  • On-site building management and security
  • Attended lobbies
  • Fancy HVAC systems
  • Fast, reliable Wi-Fi
  • Parking garages
  • Other premier tenants in the building

One example of a Class A building is 1500 Broadway in Times Square in New York City. It has hosted ABC Studios’ Good Morning America since 1985 and also provides office space for prominent tenants like Disney, Starbucks, NASDAQ, and IIG Capital. It boasts 13 floors of space and has a lobby attendant, fiber Internet, and a freight elevator. Though it’s more than 40 years old, which is unusual for a Class A building, it enjoys a premier location and is considered a tourist attraction.

In summary, Class A property is built to impress. If you’re an industry leader or otherwise work in a business where prestige is a valuable currency, leasing office space in a Class A building makes quite the statement.

Class B Buildings: Comfortable, Elegant Space

Don’t let the grade fool you: some Class B buildings enjoyed Class A status in their heyday—they’re just slightly older now, with visible signs of age. If you’re looking for an elegant, functional space without the “wow” factor—or the high price—of Class A properties, Class B buildings are a sensible option.

What does a Class B building include?

“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,” according to The Balance Small Business. What a Class B building may sacrifice in amenities, like 24/7 security or a bank of elevators, it makes up for in price without having to sacrifice on location, accessibility, and overall functionality. Class B properties with established tenant history have a vast capacity for tenant improvements to the space as well.

75 Maiden Lane, an office building located in the Financial District in NYC, well-represents its Class B status. 75 Maiden Lane is conveniently located near lots of public transportation and plenty of coffee shops and restaurants, but the building itself is nearly 100 years old. While it’s quite a bit older than most Class A buildings, it still attracts respectable tenants, mostly technology and consulting firms.

In summary, Class B buildings suit most businesses looking for attractive, functional space that makes an impression on clients and recruits without breaking the bank.

Class C Buildings: Functional, No-Frills Space

If you’re less concerned about the space class and more concerned with low rental rates, Class C buildings might be your best option — if you’re looking for a private office. If you don’t necessarily care about having your own office and you would prefer nicer digs at the expense of privacy, shared space solutions like PivotDesk could enable you to rent a nicer space within your budget.

What does a Class C building include?

Class C buildings offer functional space with old or rough finishes and some basic amenities at a fraction of Class A or Class B costs. They offer the lowest commercial rental options. But you definitely get what you pay for—like a patch of hallway for a “lobby” or a glacially slow elevator. They also might be located in less-than-desirable neighborhoods.

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