Office buildings are generally classified into one of three categories: Class A, Class B, or Class C. Standards vary by market, and each category is defined in relation to its counterparts. Building classification allows us to differentiate buildings and rationalize market data. That said, classification is an art, not a science. While a definitive formula for each class does not exist, the general characteristics are as follows:
These buildings represent the highest quality buildings in their market. They are generally the highest quality properties featuring first class tenant improvements and state of the art infrastructure. Class A buildings are located close to important amenities and enjoy good access. They are professionally managed and well maintained. Class A properties tend toward the larger side for their market. For example, in the western suburbs of Chicago most class A properties would be 50,000 square feet or larger. These features allow Class A properties to attract the highest quality tenants and command the highest rents.
This is the next notch down. Class B properties are either new buildings in secondary locations or older buildings in prime location. Class B properties also include new, smaller suburban properties sized 5,000-25,000 square feet which lack typical Class A features (covered parking, onsite property management, etc) due to their size. Class B properties are still expected to have good quality management and tenants. Often times, value-add investors target these properties as investments since well-located Class B buildings can be returned to their Class A glory. Generally, all space has been occupied at least once, but the property is not functionally obsolete.
The lowest classification of office building and space is Class C. These older buildings (usually more than 30 years old), are located in less desirable areas and are in need of extensive renovation. These properties are obsolete, featuring outdated building infrastructure and technology. As a result, Class C buildings have the lowest rental rates, take the longest time to lease, and are often targeted as re-development opportunities.
The above is just a general guideline of building classifications. No formal standard exists for classifying a building. Buildings must be viewed in the context of their markets; a Class A building in one city may not be a Class B building in another. For more information, please contact me at 630.805.2463 or [email protected]
This article was originally published by Troy Golden in the Oak Brook Office Report.
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