Business owners looking for a new location or expansion opportunity usually look for the highest quality space at the lowest possible cost. High quality is a must when the location brings clients through but more and more, even those businesses that do not have much client interaction within the space still need to consider quality in attracting and retaining employees.
The way commercial real estate experts look at the quality of space is really more art than science and two different experts may look at a particular building or space in different ways. However, most agree that the higher the quality, the more likely a building would be considered “Class A” property. Below we offer a Q&A overview to better understand Class A, B and C buildings.
Where is this classification used?
While mostly used for office buildings, these classifications can also be used in retail, flex and industrial space.
How do we know we are getting into “Class A” space?
There are many indicators that a building is Class A. Most often, the building needs to meet several, if not all, of the following requirements:
Location – the building is in a highly desirable location such as a bustling downtown/CBD or a high-traffic intersection in a fast-growing or first-ring suburb. Typically, visibility and easy/quick access are also important.
Age – the building is either newer or older/historical but upgraded or recently renovated to a great degree.
Condition – the building owner has kept the facility in top working condition and finishes of the common areas of the building are updated, clean and functional. In Class A locations, the look and feel should be well above standard.
Amenities – a Class A building will have amenities for the tenants that surpass that of the average space. There may be a gym, café/restaurant, heated underground and/or onsite parking, bike storage and repair, common area and outdoor seating and well-appointed conference rooms, open work areas, lounges and event space for tenants to utilize. Some owners offer these amenities at little to no cost to tenants while others may charge a fee for some of the higher use amenities. Owners continue to find more creative ways to accommodate and attract tenants in this type of building.
Note that Class A buildings will often be at the highest end of the rent range and a good thing to look at here (as in all buildings) is the Rentable/Usable factor (the building’s square footage efficiency) as well as the cost of the Common Area Maintenance (CAM) costs if a NNN lease.
Why would we want to go to a Class B or C building?
Often times, you can get a great deal in a Class B building! It may not be in the perfect location or have the most amenities but those come at a cost. You may still find great space in this well-kept but aging building. Class B buildings may be characterized as having one or more of the features outlined in the Class A category but the interior and exterior, while well maintained, may not have been updated in some time. Perhaps it’s a building with few amenities but still has great updated interior finishes. Generally, Class B buildings will have lower rental rates than Class A buildings.
Class C buildings can still be a good option for tenants. These usually are the lowest cost buildings in a market as they may not be as well located with little to no amenities, and they are likely an older building with aging equipment and finishes.
In all cases there are considerations a tenant should make before choosing where to go. Budget is often the first thing a business considers and any tenant should go in knowing what they can afford and what their highest priorities are. Other big considerations should be what the tenant is responsible for throughout the lease—does the space and location align with the tenants use and is it a place that is centrally located for employees and/or clients? A commercial broker can help you with this and should also be able to find opportunities a typical business owner would not be able to. We are always open to discuss these considerations with you; please call us for more information on how we can help you and your business.