A client reached out that’s ready to set up an office for the first time. We started the process with a conversation to identify their wish list, want list, and need list in order to match with the best property. During these conversations, I invariably get asked, “What’s the difference between Class A, B, and C offices?”
Classifying space quality is subjective, as in “beauty is in the eye of the beholder.” It’s a framework to go by, and one that’s open to interpretation. The classifications are a way to compare properties and organize market data.
They’re a guide –– a first step –– not an absolute guarantee to be the right property for a particular business or investment. And a Class B building in one area may be a Class A building in another location. Here are five things to know when wondering, “What’s the difference?”
1. Although standards vary by market, generally properties are categorized by their location, age, amenities, construction, condition, accessibility, and infrastructure. Finishes, security, technology capabilities, and HVAC systems play a part as well.
2. Class A buildings are built to impress. They’re usually the newest on the block with striking architecture and landscaping; have the best construction and finishes; and are well managed and maintained. Their location is ideal with great infrastructure, lots of action, and fantastic access. They get the highest rental rates and offer concierge, valet, security, and amenities, such as covered parking, daycare, restaurants, private outdoor areas, gyms, etc. Tenants not only choose these properties for their employees, but also their clients. Class A buildings are about status and bling. They’re commonly leased by law firms, financial companies, advertising agencies, and/or Fortune 500 companies.
3. On the other hand, Class B buildings are for tenants that want quality and comfort, but don’t need the status associated with a Class A building. These properties might be a little older but well located, perhaps just a few blocks off the center of a business district. They have good management and tenants, and the amenities and fixtures are solid, but not high end. For example, instead of covered parking, they’ll typically have parking lots. Or food services may be cafeteria-style or near food options, rather than housing in-building restaurants. And conference rooms and outdoor areas may be shared. Rental rates are mid-ranged and cater to a more modest and less flashy tenant.
4. Tenants on a strict budget often choose Class C buildings. Typically older properties, the spaces are functional and may need renovation. With average locations, Class C properties are often used as home base for service businesses. Since most interactions with their clients happen off-site, a space with low rental rates and room to house operations is all they need. Amenities are simple, such as onsite parking and a break room. No frill necessary.
5. Class B buildings are sometimes targeted by investors. Through upgrades and renovations, they can be returned to an A classification. The same can be said for Class C buildings, although they tend to be more fixer uppers. With the right plan and resources, those buildings can also be upgraded, turning a C into a B. Through these improvements, investors increase rental rates creating more CRE income. An experienced broker can help investors spot the best deal to meet their goals.
Once a client understands the difference in office building classifications, they need to factor in their resources and market availability for realistic options. What their eyes may want, their budget sheet may not be ready for or what they really need. As a broker, one of the things I do is help clients figure it out.
Email our team at hello@cegspaces.com or call 612-788-1552 if you have any questions or would like help with the leasing of office space. You can find me at 612-428-3333 or jeff@cegspaces.com.
Jeff Salzbrun is the owner/broker of Commercial Equities Group (CEG). As a veteran-owned real estate brokerage, CEG has been involved in thousands of sale and lease transactions, ranging from single offices to 250,000+ square foot buildings. At CEG, we get your deal done. We know space, and we know the CRE business.
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