What does "Class A" office space mean?
Excerpt from: Commercial Real Estate Loan Tips March 02, 2006
The Distinction Between Classes of Office Space is Subjective
Office buildings are classified according to a combination of location and physical characteristics. Class B and Class C buildings are always defined in reference to the qualities of Class A buildings. There is no formula by which buildings can be placed into classes; judgment is always involved.
The Urban Land Institute, a noted authority on commercial land uses, says the following about these classifications in its Office Development Handbook:
Class A office space can be characterized as buildings that have excellent location and access, attract high quality tenants, and are managed professionally. Building materials are high quality and rents are competitive with other new buildings.
In practical terms, the office buildings that you see in the heart of the financial district with lots of brass and glass fixtures and huge, expensive lobbies are examples of Class A office buildings. Class A office buildings are usually steel-framed and tall. They are often occupied by banks, high-priced law firms, investment banking companies, and other high-profile companies with a need to provide the trappings of financial success.
Class B buildings have good (versus excellent) locations, management, and construction, and tenant standards are high. Buildings should have very little functional obsolescence and deterioration.
In practical terms, Class B buildings are usually newer, wood-framed buildings or older, former Class A buildings. Class B office buildings are often found in the suburbs or the less-pricey areas of major Central Business Districts (CBS's). Wood-framed Class B office buildings are usually three stories or less.
Class C buildings are typically 15 to 25 years old but are maintaining steady occupancy. A fair number of the Class C office spaces in the inventory are not truly office buildings but rather walk-up office spaces above retail or service businesses.
In a normal market, Class A rents are much higher than Class B, which are above Class C. This makes sense because Class A buildings offer higher quality to the tenants and cost more to provide.
The classification of office buildings as either A, B or C usually relates to design and functionality, the year of construction and the building's location. Classification differs slightly from city to city, but generally follows a standard pattern, which is described below:
Class A Buildings. These buildings sport modern construction with state-of-the-art functionality and architectural design, infrastructure, life safety and mechanical systems. Class A buildings are also located in the most sought-after areas. Not surprisingly, Class A buildings typically command the highest rents, include the best amenities and, consequently, offer the least attractive concession packages for tenants.
Class B Buildings. These buildings are usually highly functional, well-located facilities more than 10 years old. Class B buildings generally feature a less desirable design and infrastructure than Class A buildings, although a well-located B building can be renovated and reclassified as Class A.
Class C Buildings. Generally, Class C buildings are more than 25 years old and have not been renovated. C buildings are functionally and architecturally obsolete and are located in less desirable areas. They command the lowest rents and attract the least credit-worthy occupants. It is not likely that a C building could be rehabilitated to A status, regardless of its location.
NOTE: These definitions do not explicitly accommodate renovated buildings that combine "modern construction with state-of-the-art functionality and architectural design, infrastructure, life safety and mechanical systems" with valued historic or heritage architectural features. There are many buildings of this kind in capital cities around the globe, notably New York and London.