Like most people's grades in school, buildings typically get classed as A, B or C. These grades are relative and frequently assigned by a landlord or a broker who has a motivation to assign the highest grade possible. However, they can also be a helpful tool to compare buildings on the basis of quality, tenant experience, and likely occupancy cost.
Class A Buildings
The best buildings in town usually make up the stock of Class A properties. Class A buildings are usually relatively new -- built within the past 15 to 20 years is a good rule of thumb. When they aren't brand new, they have usually been updated to the latest standards and offer a combination of all of the benefits of a newer building coupled with the charm and architectural significance of a historic property. You can also expect the building to have the highest level of amenities in the market and other benefits like LEED certification.
Usually, a Class A building is going to be the most expensive one. In addition, you can frequently expect to have prestigious and desirable co-tenants.
Class C Buildings
Class C space is the lowest tier of space in your market (although some appraisers will split the space into Class C and lower-quality Class D buildings). This doesn't necessarily mean that it's bad space or unattractive space -- just that it's utilitarian and functional. Class C buildings are frequently low rise and feature simple public spaces with few if any amenities.
Class B Buildings
We deviated from alphabetical order here for a simple reason. To understand Class B space, it helps to have a vision of both a Class A and Class C building. After all, Class B buildings are the ones that fall between the A and C properties in your market. Frequently, a Class B building is yesterday's A that has been left behind by newer or more recently upgraded properties. Expect to see a partial amenity package and pleasant, but not elaborate, public spaces and fits and finishes.
Not surprisingly, Class B buildings usually fall between A and C properties in terms of asking rents on a per square foot basis. However, it's entirely possible that they could end up being more expensive than a new Class A property. Older systems frequently mean that Class B properties are less efficient than Class A properties, leading to higher occupancy costs. In addition, the generous tenant improvement allowances that many owners offer on new construction could make it less expensive to build a new office in an A building than to demolish and rebuild a new space in a B building.
Market and Locational Differences
Commercial building class is relative. Class A buildings are typically the best in the market, and what passes for Class A in a suburb of a secondary market filled with low-rise buildings is likely to be a Class B or Class C property in the central business district of a primary global gateway market. The more competitive the other buildings, the higher the bar for a building to be considered as a Class A property. For this and other reasons, the best way to find the right class for you in your market is to work with a local expert tenant representative broker who can help you cut through the marketing to identify the appropriate building.
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