Office Space Classes: How Do You Know What Class Your Property Is?
Turns out it’s pretty informal, inconsistent, and has more to do with market reporting than characterizing individual properties. It’s an old problem in real estate information handling: when you’re describing a single property, you aren’t describing a wider area, trend or factor. It also holds in the reverse: information about markets by its nature depends on summaries, means and averages when being put together; these summaries don’t often work well as ways to differentiate properties.
That said, office buildings are generally classified by brokers and landlords as being either a Class A, Class B, or a Class C buildings. But differences between each of these classifications varies widely by market. Class B and C buildings are generally classified relative to Class A buildings, meaning that comparing across markets using these categorizations can lead to dangerous misinformation.
While the industry lacks a definitive formula for classifying a building, we get by (or don’t get by) on three sets of general property characteristics:
- Class A. The highest quality buildings in their market. Generally they look the best, use the best construction, their infrastructure is high quality and are professionally managed. Location and access is premium. Class A office buildings attract the top quality tenants and the highest rents that go with them.
- Class B. Typically a Class B property is older than a Class A, yet still has quality management and tenants. One aspect the distinguishes a Class B from a Class C is its “upward mobility”. Does the building’s location and circumstance allow the possibility of restoration to Class A status through common area improvement, renovation or facade? If yes, then it’s a solidly Class B office property.
- Class C. Usually older than 20 years, a Class C office property needs extensive renovation and/or is located in a less desirable location. Marked by out-dated technologies and infrastructure, and low architectural appeal, Class C buildings have the lowest rental rates, take the longest time to lease, and are often targeted as re-development opportunities.
No formal international standards exist for office building classification, which is another way of saying that office buildings should be viewed in context and relative to other buildings within the sub-market; a Class A building in one market may not be a Class A building in another.