Making Sense of Building Classifications

September 29, 2016

Professionals in the commercial real estate industry will often talk about the class of a building – how desirable a “Class A” property may be, or the value available in a “Class B” space. But what does that mean?

While the class of a building is subjective, there are guidelines that a property should adhere to in order to reach a certain classification:

To attain Class A status, a building should feature a prime central location as well as first-class tenant improvements. Investors can expect these properties to have contemporary architecture, state-of-the-art utility systems, and a high standard of upkeep and maintenance. Tenant benefits such as on-site parking and modern design are also expected, as Class A buildings should be able to command premium rent within their respective area.

There are also size definitions involved in determining which properties qualify as Class A, but these guidelines are dependent upon the market in which the asset is located. For example, large urban markets dictate that buildings be 250,000 square feet or larger, while suburban areas will consider buildings as small as 50,000 square feet within the Class A size requirements.

Class B buildings often provide a more economical option for investors, as these buildings provide useful space that has been generally well-maintained. This qualification of properties includes new buildings in non-prime locations, as well as older structures that exist in more desirable areas. Usually previously occupied, Class B properties may include rehabilitated buildings that are built using a variety of construction methods, but usually have good quality tenant improvements with well-serviced elevators and HVAC.

While it is the lowest classification of commercial buildings, Class C structures often provide opportunities for smart investment. These older structures have not been renovated and do not feature the tenant improvements other buildings may offer. They don’t generally feature parking or elevators, and the maintenance may have been less consistent. However, some commercial real estate professionals find that savvy renovation and marketing can convert these properties into a higher class of building, turning a low initial purchase price into a higher rent option within the market.

No matter the market, the class of commercial properties is subjective. A landlord may think more highly of a building than tenants or real estate professionals would. That is why it’s important to evaluate commercial real estate with the help of seasoned professionals like the team at Intelica Real Estate. We can help you determine the right moves within a market, no matter the property class.