Property Management-Winnetka

What is meant by Class B office space? Are there other classes?

Office space is usually divided into three classes – A, B, and C. The class rankings are just what one would expect. That is, higher quality at the Class A end and lower quality at the Class C end. The rating system is more a graduated scale, with each class being a range rather than a discrete class.

Defining the three classes can be difficult. As for many things, beauty is truly in the eye of the beholder and definitions are somewhat subjective. Definitions vary among regions, local markets, developers, property managers, owners, potential tenants, and real estate agents. It may even depend on competition
for tenants in a given market.

Class B and Class C buildings are often defined in reference to the qualities of Class A buildings. Judgment is always involved, as there is no set formula or legal criteria by which buildings can be placed into classes.

The classification of office buildings as either A, B or C usually relates to location, the year of construction, and physical characteristics such as design, type of construction, renovation, functionality, and the amenities that the building provides.

Class A

Generally speaking, Class A space is usually considered to be newer luxury office space that has finer finishing work inside and out, a lobby area, elevators if multi-story, multiple-fixture public rest rooms in common areas, and private restrooms within suites. The building is well located in a desirable business corridor, and is convenient to public transportation and freeways.

A Class A building is of modern construction (utilizing high quality building materials), 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 attract high quality tenants, command the highest rents (although competitive with other new buildings), include the best amenities, and offer the least attractive concession packages for tenants. They are almost always managed professionally.

Class A office space is the highest quality space locally available. The architecture of Class A office structures always prioritizes design and visual appeal over cost, and sometimes over practicality. A Class A building can be considered a testament to the success of its tenants.

Class A office space is built as multi-story (usually 3 floors or more) buildings using structural steel and composite concrete construction. Construction cost for the structure alone (excluding land purchase and site improvements) is typically relatively high per square foot, often several hundred dollars, and can rise significantly higher for a specific space due to the tenant’s preferences for interior finishes.

Class B

Harder to define, Class B space is generally less modern and with finish work that is not as high quality as Class A space. It may also be office space with no lobby, instead featuring exterior entrances to individual offices, much like garden offices or certain office condos. Not all garden offices are Class B, however. Class B buildings should have very little functional obsolescence and deterioration. They are usually highly functional, well-located facilities that have good management, and high tenant standards.

Offices built to Class A standards, but located too far off the beaten path may also be considered Class B. Class B buildings generally feature a less desirable design and infrastructure than Class A buildings.  However, a well-located B building of the right type can sometimes be renovated and reclassified as Class A.

Class C

Class C space is generally older office space without up-to-date interior features. Class C buildings are usually located in less desirable areas. Offices that are worn or that suffer from significant functional or economic obsolescence also belong in this class. Generally, Class C buildings are more than 25 years old and have not been renovated but are maintaining high levels of occupancy. They command the lowest rents and attract the least credit-worthy occupants. It is not likely that a Class C building could be renovated to Class A status even if in a good location.

A number of Class C office spaces in the inventory of a particular market are not truly office buildings, but are walk-up office spaces above retail or service businesses.

Class E

Although historically not an official classification, one sometimes sees what is referred to as Class E office space in some cities. These are generally older Class B buildings that have been considerably renovated to become spaces with a totally new look. Due to their age, they usually have high ceilings, lots of large windows, and lots of wood.  They tend to appeal to the high tech and dot-com tenants and this is likely the reason they are given the “E” class designation.

Summary

The definitions of class are subject to considerable variation and, as with many things, perceptions by tenants and the public are usually more important than the name designation.