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Thursday, May 24, 2012

What's the difference between Class A, Class B, and Class C space?


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:
  • Class A. These buildings represent the highest quality buildings in their market. They are generally the best looking buildings with the best construction, and possess high quality building infrastructure. Class A buildings also are well-located, have good access, and are professionally managed. As a result of this, they attract the highest quality tenants and also command the highest rents.
  • Class B. This is the next notch down. Class B buildings are generally a little older, but still have good quality management and tenants. Often times, value-added investors target these buildings as investments since well-located Class B buildings can be returned to their Class A glory through renovation such as facade and common area improvements. Class B buildings should generally not be functionally obsolete and should be well maintained.
  • Class C. The lowest classification of office building and space is Class C. These are older buildings (usually more than 20), and are located in less desirable areas and are in need of extensive renovation. Architecturally, these buildings are the least desirable and building infrastructure and technology is out-dated. 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 sub-market; a Class A building in one neighborhood may not be a Class A building in another.
Troy Golden is Vice President at SCGroup Real Estate. He received his undergraduate degree from Yale University and his MBA in Real Estate from the Wisconsin School of Business. Troy specializes in commercial office brokerage in Chicagoland. Please contact him at tgolden@scgroupco.com or (630) 474-9997.  Visit SCGroup Real Estate atwww.scgroupco.com.  

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Troy