When you’re looking for commercial office space, there are a number of decisions that need to be made. Some of the more obvious include location, budget, square footage needs, and the amenity package each building offers. To help gain a better understanding of what to expect in a building, commercial real estate properties are classified into three different asset classes (A, B, and C). These classifications are based on age, aesthetics, amenities, quality of materials, architectural design, location, etc. Let’s dive into the two most common asset classes, A and B.
CLASS A: One of the defining factors of Class A buildings is their prime location. The premier location of Class A buildings not only offers convenience for employees and clients but also provides businesses with an esteemed address that boosts their corporate image. Below are some factors that go in the importance of Class A building location.
Often situated in the heart of major business districts or prestigious neighborhoods
Amenity Rich Area
Well-served by public transportation and surrounded by a wealth of services and amenities, such as high-end restaurants, shops, banks, and hotels.
Offers employees public transit opportunity and is typically located close to major interstates.
Provides businesses with an esteemed address that can boost corporate image and employee satisfaction.
Heavy foot traffic/car volume daily.
CLASS B: Class B buildings, on the other hand, may not occupy the most high-end addresses but are typically located in accessible and convenient areas. Due to their less central location, the competition for these buildings is usually less intense, leading to more availability and potentially more favorable lease terms. When it comes to Class B buildings, below are some locational factors to consider:
Secondary business districts, suburban areas, or right outside of major business hubs
Farther from major Interstates.
A drive to closest dining options, public transit, services, etc.
Fewer amenities nearby
CLASS A: While the rates are high, businesses investing in Class A buildings view the cost as a valuable investment in their brand image, employee satisfaction, luring employees back to the office, back to the office, and overall business success. Class A Buildings Command the Highest Rents, due to several factors, including:
Built or renovated within the last 10-15 years.
Newer Mechanical systems
Amenity Rich Building
Higher Common Area Factor (Loss Factor)
The loss factor in an amenity rich building typically falls between 15%-35%, meaning you would be paying for your usable square footage plus 15%-35% in additional cost depending on the loss factor in the building.
CLASS B: After you factor in location, lower quality building standard finishes, and amenities, Class B landlords are forced to offer a more competitive rate, making them appeal to small and medium-sized businesses looking to save money. Class B Buildings Command Lower Rents, due to several factors, including:
Provide a balance between cost and quality.
Fewer, if any, amenities
Lower quality finishes
Poor Accessibility to Public Transit
Less desirable Locations
Aging mechanical systems
CLASS A: Tenants are paying rents at the highest end of the market, to be in Class A building, which in turn means those tenants expect a high-quality building to justify the increased rental liability. Listed below are some examples of what tenants can expect in a Class A building in terms of building quality.
Built using high-quality materials, state-of-the-art design principles, and visually appealing inside and out.
These buildings have big atrium lobbies, higher end building standard building finishes, amenity rich, common conference rooms, etc.
Well maintained common areas and landscaping.
Updated HVAC systems.
Companies often prefer Class A buildings to create a prestigious image and attract top talent.
Typically built or undergone major renovations over the last 15 years.
Higher end building standard finishes.
CLASS B: Although Class B buildings are typically well-maintained and may have modern features, they often lack certain features that make Class A buildings stand out including:
shared common space, dated lobbies, etc.
Buildings more than 15 years old that have not undergone any renovations.
Lower quality building standard finishes for prospective tenants.
Less Common Area space and lack of building amenities
Dated HVAC systems with poor ventilation.
Lower ceiling heights
Dated façade, interior, and common areas.
Class A: The amenities provided in Class A buildings are a significant determining factor between the two Classes. Class A Amenities can include:
Large Fitness Centers (with showers and lockers)
State of the art common conferencing facilities
Outdoor space such as roof decks, walking paths, outdoor patios, and seating.
Car Charging Stations
Safety & Wellness:
advanced air filtration systems, touchless technologies, and ample green spaces.
Onsite security guards
Class B: Overall, Class B buildings offer functional amenities that fulfill the basic needs of tenants while maintaining affordability. The amenities offered in Class B buildings, while not as luxurious, are still aimed at creating a comfortable and healthy work environment. Class B building amenities may include:
Nearby dining facilities
Small fitness facilities(with showers)
Grab & Go food options.
common conference center.
Limited on-site security
Differences Between Ownership Groups:
Class A: Landlords of Class A buildings are typically large-scale real estate investment trusts or high-net-worth individuals or corporations. They are financially capable of maintaining the lofty standards required for class A properties, including:
Maintaining and servicing top tier amenities, high-end finishes, and innovative technologies.
In-house property management companies to maintain the property
Tenants have direct access to property management, allowing issues to be resolved swiftly.
Financial capability to continue to renovate the property over time to stay up to date with latest technologies, building trends, and sustainable practices.
Looking for Prefer Strong Credit Worthy tenants.
Class B: Landlords of Class B buildings are smaller real estate entities or local individual investors who may have a limited portfolio of properties. They often take pride in maintaining their buildings to a high standard, which, while it may not be as luxurious as Class A buildings, still provides a comfortable and functional building. That said, a few of most notable differences between the two include:
Class B landlords are less likely to update common area amenities or conduct extensive renovations.
Default Concerns during real estate downturns
Ability to fund buildouts
They will be more willing to negotiate terms and conditions to accommodate the needs of a diverse range of businesses.
Less likely to provide Top tier finishes for tenant space build outs.
In summary, a Class A commercial office building represents a top-tier property that offers prime location, impressive design, ample space, modern amenities, and exceptional services. It caters to high-profile tenants seeking a prestigious and professional environment for their business operations. The location of a Class A office building plays a crucial role in its overall appeal and influence. Consequently, Developers and businesses carefully consider location factors when selecting or investing in Class A office buildings to ensure they meet the needs and expectations of the target market.
Class B office buildings offer a middle ground between Class A and Class C buildings. They are well-maintained and located in convenient areas, attracting a diverse range of office users. While they may not have the high-end amenities and finishes of Class A buildings, they provide functional and affordable office space.
Ultimately, the choice between Class A and Class B office buildings depends on several factors including the importance of amenities, brand image, location, and budget. Class A provides the best quality at a price while Class B provides a balance between quality and cost.