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What are the differences between Class A, B and C buildings?
By Steve Eisenshtadt, SIOR, CCIM, JD
Senior Vice President, Friedman Integrated Real Estate Solutions
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:
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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.
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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.
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- 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.
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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.
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Class B
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Criteria
- A grade below Class A
- Slightly older buildings
- Good management, quality tenants
- Building finishes – Fair to good
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- 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
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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
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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
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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.
Additional Factors to consider:
- Floor load capacity.
- Ceiling height.
- Improvements to common areas.
- Nearby services (restaurants, business clusters, dry cleaning, banks, ATM, etc.).
- Access (freeway, public transportation).
For more information on building classifications, or assistance with leasing office space, please contact me.
Steve Eisenshtadt, SIOR, CCIM, JD
Senior Vice President
248-848-3535
Steve.Eisenshtadt@Freg.com[/vc_column_text][/vc_column][/vc_row]
