Mar 20, 2013 10:10:00 AM

Site Selection: What Class of Building Should I Lease?

By Jordan Slater

CRE_Site_Selection_Class

Many businesses gravitate to class A office space by default for there prestige, prominence and amenities. However, Class B and C spaces also have their place and should be included in site selection surveys for just about any business.


Understanding Building Classes

Building classes aren't hard-and-fast categories. They vary depending on the market and on the competitive stock, so a class A building in a suburb to a tertiary community might just barely qualify as a Class B in a major city's central business district. However, keeping some general rules in mind can help organize your company's site selection process:

  • Class A space represents the best that your market has to offer. These buildings are either the newest in the market or are significant older buildings, like the Empire State Building, that have been restored to top-of-the-market condition. Typically, a class A building is built with steel-and-glass construction and maintained to an extremely high standard. Class A space also usually has the highest amenity load, attractive lobbies, and other features designed to make it an impressive place both for your employees to work and for customers and vendors to visit.

  • Class B space is, in many cases, the class A space of ten years ago. These buildings are still attractive, but are a step below the Class A buildings in the market. In many cases, they're just a minor renovation away from being restored to Class A condition.

  • Class C space is everything else. It includes neighborhood buildings, older central business district office buildings and many similar spaces. Class C buildings can't realistically be restored to Class A condition since they are usually functionally obsolete. However, they also offer low-cost space that can be conveniently located.

Alternatives to Class A

There are many reasons that Class A space isn't appropriate for many companies. If any of these apply to your business, including Class B or C space in your site selection process makes excellent business sense.


  • Cost. Rents for Class B and Class C spaces are usually significantly lower than rents for A space. At the same time, other expenses are frequently lower. Many A buildings have rules that determine what types of tenant improvements you can do and which vendors you need to use, potentially increasing their costs. The amenities in class A spaces also frequently lead to higher load factors and to higher CAM charges while their higher values lead to higher property taxes. If you're on a Triple Net lease, you bear all of these costs directly.

  • Location. Site selection is easy when you're looking at Class A buildings -- just go downtown or to the most prominent office and industrial parks. B and C properties are located just about anywhere. If your business doesn't need to be downtown, you might be able to a better location in a B or C market.

  • Image. Occupying a Class A building sends a clear message about your company. However not every company (or office within a company) needs to send such a message. For some businesses, this is actually more appropriate to their stated brand.

  • Fewer restrictions. Many Class A buildings have restrictions on the types of tenants that they will allow. B and C buildings are usually more flexible. Class C buildings with exterior entries that are tenant-controlled can be even easier to work with. If your business has special needs from its space, non-A space may be the only option.

 

Site selection doesn't have to be a limiting process. By looking at every class of building, your business can find the perfect space for its needs.

 

Other great Commercial Site Selection articles:

Why Site Selection is the Key

Simplifying Site Selection with Technology

The Newest CFO Prerogative: Site Selection

 

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Topics: Site Selection

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Jordan Slater