“Beauty is in the eye of the beholder.” That statement is true in many respects, including commercial real estate. When a business is deciding where to open or move its offices, “beauty” is often generalized by the Class A, Class B and Class C ranking system, where Class A is the best-of-the-best and Class C is functional space unlikely to win any beauty contests.
As a real estate professional, I am frequently asked how to decipher the class a particular building falls under. While the classifications are subjective and vary by market, you can generally use the following descriptions as a guide.
CLASS A: THE CREAM OF THE CROP
Generally speaking, a Class A building will have a prominent address and a variety of amenities such as a fitness center, café, conference space, etc. It will be a newer building, built in the past 10 years and it will feature higher-end finishes. For more on Class A interior finishes, read my Colliers colleague Anita Turner’s recent post, “What 5 Interior Finishes Make a Class A Office Build Out Class A?”.
I say generally speaking because there are many Class A buildings that are 25–30 years old but are very well-located and amenity-rich (think Carnegie Center in Princeton, NJ). For this reason, I personally think the industry should also adopt an A+ and A- rating. This could help distinguish between the many varieties of Class A buildings that are more or less compelling than others.
CLASS B: THE SOLID STANDBYS
Class B buildings can also have amenities like fitness centers and cafeterias, but will most likely be located off the beaten path. Often times, landlords must add more amenities to their Class B buildings to enhance value and increase their ability to lease space.
Unlike a Class A building, in a Class B building you likely won’t find marble flooring, LED light fixtures, glass features and other high-end finishes in the common areas. The building should give off a “warm” and welcoming feel but it won’t be overly impressive.
CLASS C: THE FIXER-UPPERS
If you walk into a building and are tempted to walk right back out, then you might be in a Class C building. These buildings are 30+ years old and haven’t been renovated since they were built. Many are poorly maintained and lacking in amenities and desirable location.
Many Class C buildings can be renovated and modernized to become Class B buildings. But unless you tear the building down and start from scratch, Class C buildings are unlikely to transform into Class A buildings.
ZEROING IN ON THE RIGHT CLASS FOR YOU
As you search for your next office, you might have financial constraints to consider, or as I like to call it, a budget. If that’s the case, it can be helpful to narrow your search to a particular building classification.
According to Colliers’ Q4 2016 New Jersey Office Market Report, Class A asking rents in New Jersey were $29.02/square foot compared to $22.78/square foot for Class B asking rents and $18.62/square foot for Class C asking rents. That means Class A space is leasing at a 56% premium compared to Class C space.
If you’re currently leasing a Class A space but find little value in paying a premium, then considering a Class B space could result in a major rent reduction. Conversely, if you’re leasing a Class B or Class C space and are ready to make a “flight-to-quality move,” then Class A space is where you want to be looking.
Before touring space, be sure to consult with your real estate advisor to figure out which class of office building is best for you and your business.
Based in Princeton, N.J., Vinny specializes in tenant and landlord representation for Colliers International, working directly with his clients in the acquisition and disposition of office space. For more commercial real estate insight and trends, follow Vinny on Twitter.