What Determines Office Building Class?
In the commercial real estate industry, office buildings are typically labeled as Class A, B, or C properties. While it is fairly simple to understand a Class A property is better than a Class B or C property, it is less clear what goes into making that determination. That is because there is no defined national system to classify office buildings.
In fact, what determines office building class varies slightly on a market to market basis. There are, however, consistent factors that go into determining office building class. Most frequently, these include:
- Local Real Estate Market
- Property Features and Amenities
- Architecture and Aesthetics
- Infrastructure, Age, and Condition
- Physical Location
While these 5 factors are all important in determining office building class, other factors certainly exist. This is especially true on a market by market basis. It is important to remember there are no set criteria to determine office building classes.
Local Real Estate Market
The local real estate market is another key factor in determining building class. Since there is no set criteria, the same building could be classified differently in different geographic markets. For example, a Class A building Jacksonville, might only be considered a Class B building in New York City, Chicago or Los Angeles.
At the same time, the market does not define building class. An office building is not automatically a Class A property just because it is in New York City. The most important thing to remember is that the local geographic market will be a factor in determining office building class.
Property Features and Amenities
On-site amenities are another factor in determining whether an office building is a Class A, B or C property. While all office buildings will offer amenities, the types and quality of the services will greatly influence classification.
Class A properties will offer a wide array of high end amenities. Class B buildings will also offer numerous amenities, but the quality might be lower than a Class A building. For example, a Class A building might have a parking garage with a valet service. Meanwhile, a Class B building offers free parking in a lot around the corner. Class C buildings will offer the fewest amenities of the three classes.
Click here for Property Manager Insider’s list of 10 great office building amenities to attract and retain tenants.
Architecture, Construction and Aesthetics
An office building’s visual appearance is another key factor in determining whether it is a Class A, B, or C property. Class A buildings will have the best visual appearance of the group and are normally designed by award winning architects. Additionally, they will use the highest quality building materials and are typically built by the top general contractors.
Class B and C properties will be less visually appealing than Class A properties. They are still built by reputable general contractors and professionally designed, just to a lower standard than Class A buildings. Class B and C properties will have fewer windows or smaller windows than Class A buildings, for example. Just like the other factors that determine office building class, architecture, construction and aesthetics vary by market.
Infrastructure, Age and Condition
When determining office building class, infrastructure plays a critical role. In general, this refers to overall building performance. Class A buildings offer the fastest and strongest internet (WiFi) speeds, powerful HVAC systems, building automation controls and reliable high speed elevators, among other things. Additional infrastructure characteristics of Class A buildings include state of the art security systems, access controls, and lighting systems.
While all three classes of office buildings will have internet, air conditioning and elevators, it is the quality of the infrastructure that impacts building class.
The overall age and condition of an office property will also impact its classification. Class A offices are typically the newest buildings in their local market. Older properties that are still considered Class A buildings will be in excellent condition. Infrastructure, age and condition are combined into one factor because they often go hand in hand. For example, new buildings in great condition will also offer excellent technological infrastructure.
A properties physical location within the local market will impact its classification. Class A properties will be located in premium areas of the local market. This could mean direct access to mass transit or a downtown address. Class B properties could be located on the edge of downtown or in the suburbs. Class C office properties will have the least desirable locations.
Even though property location is a major factor, it is just one of many that determines office building class. Class B buildings can be located downtown near mass transit and a Class A property can be in the suburbs right off a major highway. Just like the rest of the factors on this list, the impact of property location in determining office building class will be set by the local market and is not standardized across the commercial real estate industry.
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