It’s standard in the commercial property business to divide office real estate into three main categories; Class A, Class B, and Class C. These commercial property grades make it easier for investors, developers, brokers, and lenders to distinguish levels of risk and return for different classes of office buildings. While not a science, every office building in Chicago is rated according to building specifics like age, amenities, and aesthetics.
Here’s a primer on what differentiates commercial real estate building classes.
Class A Office Buildings
The most prestigious buildings with the most amenities in the most desired locations are classified as Class A office buildings. They are generally the most attractive buildings, built from the highest quality materials and construction methods. A grade A office building usually has a professional manager, good access, and is located in visible, high traffic areas.
Due to their exceptional quality, Class A office space is leased to reputable tenants at the highest rental rates in the market. This office classification possesses first-class finishes, high-tech security, and state-of-the-art technological capabilities. Those who seek these spaces want to provide a favorable impression to clients.
Class A office space is prevalent in financial districts and appeals to professional services like law firms, architecture firms, advertising agencies, or financial management companies. However, it’s not uncommon to find these spaces in older distinguished buildings with outstanding ownership in prime markets, for example, the Flatiron Building in New York.
To subscribe to a Class A office definition, space would need to provide the following, and more: concierge services, valet services, security, dining options, daycare centers, covered parking, gyms, showers, lounges, bike storage, and private outdoor space. By and of itself, Class A office space is mostly about business prestige.
Class B Office Space
Older buildings with robust management and quality tenants, but not the same high-end fixtures, architecture, and striking lobbies as Class A office buildings fall into building Class B. Value-added investors regularly seek these buildings to renovate them back to class A and turn a profit. The majority of these buildings are fewer than four stories tall and located in suburbs or the periphery of large financial districts.
Class B buildings retain an acceptable curtain wall finish, adequate mechanical, electrical, safety, security systems, and mid-quality interior finishes. The distinguishing factor between a class A vs class B building is the quality and variety of amenities and building finishes. These office spaces compete for a wide range of users that want average rental rates for their market areas.
Tenants who occupy Class B buildings don’t need to be in the middle of the action, nor do they require an outward display of prestige. Instead, they want to provide employees with a comfortable, modern workspace. Typical tenants include companies that value function over form, and are in fields like IT, creative services, and call centers.
To fit a Class B office definition, amenities would need to include, but aren’t limited to on-site parking, security, conference rooms, bike storage, cafeteria-style or café dining, and shared outdoor spaces. Many building Class B offices were formerly Class A, but need to be reconfigured to meet today’s Class A workplace standards.
Class C Office Space
What is building Class C? Class C office space buildings are generally older and located in less desirable streets or in older sections of a city. They are routinely sold as fixer-uppers for investors who want to bump them up to Class B status, but they are also suitable for tenants who need a functional space without frills at below-average rent for the area.
Older, less desirable architecture, limited infrastructure, and bare-bones technology define these spaces. As such, Class C office space can be more challenging for landlords to find tenants. Those who do rent do so for short time-frames or use the space as a home base for service operations that occur off-site.
Class C buildings can be upgraded to Class B with substantial renovations and repairs, although they are unlikely to ever achieve Class A status due to location and age. Class C offices usually appeal to modest, start-up tenants because they can allocate financial resources toward growth rather than rent.
Class C property tenants may include small service-orientated or industrial businesses such as companies that do engineering, landscaping, sign making, security, construction, plumbing, and electrical. Its minimal amenities include onsite parking and break rooms.
Classifications for different types of office buildings are somewhat subjective because they fluctuate according to the state of the real estate market and the amenities offered. However, as an office tenant, it’s important to identify the classes of office buildings so you know what to expect at different price brackets.
Ultimately, once a potential office space fulfills your business’s operational needs; your intuition becomes the dealbreaker. If you’re in the market for a comfortable and stylish place to work, then check out 620 N LaSalle. We have a rooftop terrace, conference room, fitness center, and much more. Contact us today!
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