Got Class? The Slippery Business of Classifying Office Space

Classifying office space as Class A, B or C can be a subjective business. Yet many businesses searching for space have their own perspective on what classes mean. At the end of the day, most want to be in the highest quality space for the best rate or value.

Yesterday, CommercialSource printed a useful post with characteristics of the three primary classes of office space:

Class A.The highest quality buildings in their market. Generally they look the best, use the best construction, their infrastructure is high quality and are professionally managed. Location and access is premium.  Class A office buildings attract the top quality tenants and the highest rents that go with them.

Class B. Typically a Class B property is older than a Class A, yet still has quality management and tenants.  One aspect the distinguishes a Class B from a Class C is its “upward mobility”.  Does the building’s location and circumstance allow the possibility of restoration to Class A status through common area improvement, renovation or facade?  If yes, then it’s a solidly Class B office property.

Class C. Usually older than 20 years, a Class C office property needs extensive renovation and/or is located in a less desirable location.  Marked by out-dated technologies and infrastructure, and low architectural appeal,  Class C buildings have the lowest rental rates, take the longest time to lease, and are often targeted as re-development opportunities.

C&W | PICOR President, Mike Hammond, is famously fond of saying the definition of a class A building is one you can buy and sell for a profit. That being said, Tucson office buildings classified by our primary data source, CoStar Group, are also labeled using this class system, though CoStar is moving nationally toward a system of ‘star ratings’ for buildings, which has been rolled out through their iPad product, CoStarGo. This from CoStar’s glossary:

Building Rating System:

“The CoStar Five Star Building Rating System is the industry’s first nationally consistent building quality rating system that can be applied across all commercial real estate property types and across all markets. To quantify these ratings, we are using the universally recognized five-star system. Each star rating in this system represents a particular level of quality with five stars indicating the nation’s highest quality assets. Only available in CoStar Go.”

Tucson’s office inventory includes 2,415 buildings, broken down as follows:

Class A: 18

Class B: 1,221

Class C 1,176

The limited number of class A buildings is reflective of multiple factors, including the high percentage of Tucson office buildings in suburban or ‘garden office’ settings. Many of Tucson’s class A buildings would be rated B or lower if located in primary or trophy markets, but their class A rating places them, relatively speaking, against the competition. What is important is consistency within a market such as Tucson in treatment of similar buildings.

Barbi Reuter PICOR TucsonBarbi Reuter, RPA oversees Cushman & Wakefield | PICOR’s operations, research, finance and marketing/social media activities and serves as Associate Broker. One of 13 company Principals, she is active in industry and community leadership, through such organizations as Commercial Real Estate Women (CREW), Greater Tucson Leadership, Arizona Town Hall, and board work for the Tucson Girls Chorus and PICOR Charitable Foundation. 

Photo credit: Lyn Sims Photography

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