One of the biggest factors affecting your monthly lease payment is the quality of the building you are in. You can get a general idea of the quality of a building by it’s class designation or grade (A,B,C). (There are also technically class D buildings, although they are much rarer and not really worth discussing as most businesses would not utilize such space).
Here is an explanation of each class and several examples of what kind of businesses most often lease that class for their office space needs.
Class A – High Profile Law Firms, Marketing Agencies, and Financial Firms
A Class A building is generally newer, probably less than ten years old, and therefore has fewer maintenance issues. The building has modern amenities and other in-demand features. Class A properties generally command the highest rent but may provide a lower amount of cash flow, because of the high-demand for an “easy investment.” More demand, higher purchase cost = lower cash flow.
Class A office spaces are top-notch in quality, also costing the most per square foot. These buildings are built to impress, often having soaring atriums, marble walls, and concierge/valet services. Class A office space is all about hosting high-profile clients, which is why this is probably your grade of choice if you are a high-powered law firm or or financial firm who needs to impress clients.
In general, A space does not really have much of an advantage over B space for the average business owner who just needs to lease office space for his or her employees.
Here are some other common characteristics of Class A buildings:
- 24 Hour Building (if located in what is considered a 24 hour city)
- 1-2 years old (or recently remodeled from top to bottom)
- High-rise style
- Top Notch Internet Wiring
- Luxurious elevators, fixtures, and services
Class B – Businesses That Want A Nice Space But Don’t Have To Have The Best of the Best.
A Class B building is probably 5-10 years old, mostly upgraded but perhaps lacking the shine of a Class A property. Rental income is probably lower than what you might find with a Class A property, and the maintenance costs will likely be higher because of the age of the building. B grade office spaces start at around 70% base cost per square foot of A class. There are two kinds of B grade office spaces:
- A B grade office building could be a previously A grade building that has been downgraded. This is generally because the building is starting to show signs of wear or because the market has changed and that area of town is not as desirable as it once was.
- There are also purpose-made B buildings. These are buildings that were purposefully constructed to provide functional office space for a cheaper price than A grade space. In most cases, the buildings are just as functional as A buildings but they aren’t as fancy. Firms that do not entertain high-profile clients often lease these spaces. Other businesses such as travel agencies, businesses that just need back office operations, and businesses that just need general work space for their employees often lease these spaces.
Class C – General work-space for businesses, Bail Bondsman, Immigration attorneys, social work businesses
A Class C building is a property likely to be older than 15 years and looks the part. Numerous repairs are likely needed, and ongoing maintenance should be expected. Systems in the property, such as plumbing and electrical, may be outdated and require ongoing attention. Properties will typically rent for a low amount in this area, but the properties will also be much more affordable than Classes A or B.
Class C buildings are either A buildings that are really getting old (15-20 years) or B buildings that are older than say 5 years or so and are starting to show signs of wear. Again, these buildings are generally functional, they just may not look as nice and their technology, wi-fi, etc is generally older than Class A or B buildings. C Class office space starts at around 50 to 70% of the cost of A grade space.
Again, if you just need to rent office space for your employees, C buildings can be a good option. Just make sure you account for possible renovations if you need newer technology or nicer atmosphere. If you are a bondsman, immigration attorney, or social worker who just needs cheap space, class C office space could be perfect for you.
B Grade Office Space is Our Recommendation for the Average Small Business Owner
Unless you need to entertain high-profile clients, B grade space should be more than enough for your office space needs. It is significantly cheaper than A grade space but still has all the functionality and cleanliness of A grade, just without the frills and extra amenities. Keep in mind that class designations are not an official grading. They are advertised by the business owner themselves. There is however generally consensus among the brokers as to what is actually A, B, and C grade space.