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How Building Class Impacts Office Rents

 

Office buildings vary from block to block, city to city and year to year with ever-changing technologies. For this reason, a commercial real estate classification structure exists to differentiate the quality of office properties and to guide the rental prices landlords can charge for their office rents. The three classifications are A, B and C.  Prospective tenants can use these classifications to quickly identify which properties meet their basic needs and if a given building is listed at a fair price.

According to Building Owners and Managers Association (BOMA) there are six primary factors that influence a property’s class. We like to break these factors into two categories—quantitative factors and qualitative factors.

Quantitative factors are easily measured and address the functionality of a building. Building system standards and efficiencies, location and accessibility and building amenities are the three main quantitative factors that determine whether a building falls into the Class A, Class B or Class C category.

Qualitative factors are more subjective and address the look, feel and the intangible popularity of a building. Building material finishes, existing tenants and market perception are the three main qualitative factors. It can be argued that an office building’s class final rating is subjective in general and varies from city to city. However, the most influential factors are building systems, infrastructure and materials, making class a good indicator of building quality.

Now that we understand what considerations make up a rating, we can explore each building class and its offerings.

Class A

Class A buildings are the highest quality properties in the market and certainly have positive market perception. These buildings are the places to be because of their ideal locations, high-end finishes and/or advanced systems and technologies. They are  big names like Google and Facebook office because they offer campus-inspired amenities, are generally new construction and offer exceptional accessibility to employees. Class A will include some combination of features such as in-building eateries and fitness facilities, garage parking and close proximity to restaurants, parks and other business functions. Because these properties have so much to offer, landlords are able to charge above market rents for office space, and handpick well-established, prestigious companies with extensive and good credit history.

Class B

Class B buildings are an affordable alternative to Class A with their well-maintained facilities, moderate accessibility and fair to good material finishes. They are usually located in suburban markets and compete to secure a wide range of tenant types. These properties are good options because their infrastructure can support modern technologies with some renovations and generally carry smaller price tags for companies with more moderate budgets. In addition, landlords of Class B buildings may offer more tenant incentive dollars to go towards suite improvements depending on the age and condition of the property.

Class C

Class C buildings are for those who value function above all else. These properties are generally older than 20 years and lack beautiful material finishes. While they are not immediately equipped for modern technologies, extensive renovations can upgrade system capabilities. If you run straightforward operations and simply need somewhere to get stuff done—Class C is for you.

The building classification structure can help companies searching for office space quickly assess which buildings address their workplace priorities and fit within their budgets. However, a building’s class is subjective and is better used as a starting point for finding the best office building for your company. For a more in-depth analysis of your office options it is always best to partner with a professional tenant representative who has comprehensive knowledge of and is familiar with the nuances of the local real estate market.

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This blog was guest authored by Bonnie Morata of HPI Corporate Services

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