Office buildings can range greatly in style and quality, as an office space has the opportunity to impress occupants and visitors or feel like a second home to employees. However, an office that receives fewer investments risks feeling utilitarian or old-fashioned. So, to better distinguish between the quality and amenities of different office buildings, real estate experts group properties into asset classes.
The designation of office buildings into class A, B or C helps tenants, landlords, investors, and brokers identify and compare buildings that compete against each other for similar tenants. Specifically, buildings are classified based on parameters such as the age of the building; technological capabilities; the quality of the HVAC systems; location; building infrastructure; maintenance; and amenities, like dry cleaning, copying services, mail collection service, fitness centers, daycare centers, or cafés or food courts.
Still, it should be noted that these classifications are entirely subjective. And, while organizations such as BOMA and NAIOP offer broad guidelines for classifying office buildings, ratings may still vary widely between markets — and even between brokerages within the same market. For example, a class A building in a smaller market may have little in common with a class A office space in Manhattan. Meanwhile, class B and class C buildings are generally rated relative to class A buildings in each market.
Class A Office Buildings
Class A buildings are typically coveted, highly sought-after spaces of significant size, usually in a central location within a market. In a central business district (CBD), this could mean 250,000 square feet or more of office space, whereas, in a suburban location or smaller metropolitan area, a 50,000-square-foot building might qualify. As one might expect, these prestigious buildings compete for premium office tenants. Class A office buildings often have high occupancy rates and will house only a handful of notable companies with great retention.
However, size and location are only part of the equation. Class A buildings also possess top-notch qualities and amenities that demand higher rents. These features may include superior infrastructure; state-of-the-art technology capabilities; impressive design and architectural elements; and/or the latest in elevator and HVAC systems.
Likewise, amenities also abound for tenants of a Class A building: Concierge and outstanding security services are generally standard. A class A building may also have rich décor, such as indoor atriums complete with abundant greenery and a water feature. Buildings in this class may also benefit from food courts with cafés, restaurants and coffee shops. Other potential amenities include in-house mail collection and copying services, thereby providing further convenience. On-site parking — and generous parking ratios — are other frequent amenities of this building class.
And, while systems and amenities are important, aesthetics also give class A buildings additional value. Premium finishes — like mahogany and marble — in lobbies and other common areas can awe visitors and leads, and architectural elements can make class A buildings stand out in city centers.
Notably, class A buildings don’t always have to be newly constructed. In fact, renowned structures with stellar ownership in prime neighborhoods are often class A due to their market presence and prestige.
Class B Office Buildings
In comparison, class B buildings are generally older and almost always have had previous tenants in the space. Technological capacity is good, but not best-in class, and elevator and HVAC systems are functional, but not industry-leading. Similarly, finishes here are good to higher quality, but may appear outdated in comparison to the quality of those in class A properties.
These buildings compete for a wide range of tenants, and their rents may be near the market average. Therefore, class B buildings may be found in prime market locations — but on a side street, rather than a main thoroughfare. A class B building may also benefit from a professional and attractive lobby of marble and tile with 24/7 service, but the materials and design are generally of lower quality than in class A properties. There may also be some on-site parking options, although they may be uncovered and limited.
Despite their lower associated costs, class B buildings may be seen as market benchmarks. While they lack the associated prestige or state-of-the-art qualities of class A buildings, they can still excel in services offered to tenants — especially in terms of the cost-to-benefit ratio.
Class C Office Buildings
Class C structures are older buildings — usually at least 20 years old, although they could be much older — and have a long history of occupation by other tenants. Unlike the previous office building classes, amenities may be scant and furnishings may have fallen behind the trends due to lower expenditures.
Because they lack many modern amenities, these buildings rent functional space at below-average rates. As a result, they compete for tenants who desire the most economical option for office space and are not willing to pay more for additional amenities and services.
Trophy Office Buildings
There is one additional office building asset class in commercial real estate known as “trophy buildings.” These are the cream of the crop buildings that are industry leaders in every respect — including technology, architectural design, posh finishes and sustainability. Trophy properties are in the best locations in prime markets and are the most exclusive in price — greatly narrowing the list of tenants who can afford their advantages.
Few properties fall into this category, but the ones that do are iconic office buildings. For example, the Bank of America Tower (also known as 1 Bryant Park) in New York City — with its one-of-a-kind architecture, urban garden room and highest-quality finishes — is an excellent example of a trophy building. Similarly, the Transamerica Building in San Francisco and Chicago’s Willis Tower (formerly the Sears Tower) may also be considered trophy buildings despite their age, due to their striking architecture; prestigious location and tenants; great amenities; and iconic status.
What Office Building Asset Class Might Suit You Best
Every tenant’s dream is to have a spot in a prestigious class A or trophy property. But, realistically, every asset class may be appropriate for a company depending on their budget, size and needs.
For example, not every business needs a building that leaves every investor awestruck. Such properties are aimed more toward tenants like law firms, investment firms and other companies that rely on image to compete in their marketplace. They may also be a good fit for established, prosperous businesses that can afford the higher rents.
Meanwhile, class B buildings are solid options for tenants needing a professional space with good maintenance and tenant improvement opportunities. And, class C buildings are a good choice for tenants needing economical space during their company’s growth phase.
Building classifications are subjective and, as such, they don’t have to guide every decision. For instance, one class A space could be highly regarded by a real estate broker building their image, but a tenant might find a class B space to be a better fit for their company due to its location or services. Or, a class B space could have the perfect amenities to make it feel like a class A space to a company owner. The bottom line is that owners should find the space that suits their businesses, and only use the asset class system as a general guideline.