Today’s rates for a wide range of commercial property and loan types.
Check Today's Rates →
Class A, B, and C Office Buildings in Commercial Real Estate
Explore the different office asset classes and how properties are classified into each category.
What are Office Building Classes in Commercial Real Estate?
In commercial real estate, office buildings are typically placed in one of three categories: Class A, Class B, or Class C. Each category represents a different level of price, quality, and amenities.
Because real estate quality varies greatly from place to place, A, B, and C classifications are subjective. They are based on what's available in a specific, local area.
As a result, a Class A building in a mid-size city or suburban area might be considered a Class B building in a larger, urban market.
Class A Office Buildings
Class A office properties are the newest and most state-of-the-art office buildings in the area. For example, most new high-rises in any city's financial district are considered Class A properties.
These buildings usually have high-quality construction, a great location, top-notch management, and lots of visual appeal. Often (though it depends on the market) they may also have a high parking ratio, the latest in security and communications systems, and best-in-class amenities. Class A buildings are also typically quite energy efficient.
While the tenant mix doesn't typically determine which class a building falls into, Class A properties are often occupied by prestige clients such as well-known law firms and banks. Because of this, Class A buildings are the most expensive, and they often offer leases at significantly above the market average.
Class B Office Buildings
Often slightly older (usually between 10 and 20 years old), Class B office buildings have fair to good visual appeal, are somewhat well located, have a fair amount of on-site parking, functional HVAC systems, and decent quality management. While many Class B buildings are four stories or less, there's no shortage of older skyscrapers that also get dropped into this bucket.
In many cases, Class B buildings can "graduate" to Class A with significant renovations. Class B buildings are often occupied by mid-market clients, such as a smaller, local businesses. These buildings occupy the medium price range for the area.
Class C Office Buildings
Class C buildings are often much older (often 20 years or more), need substantial renovation or improvements, don't usually have elevators or central air conditioning, and are often located farther from desirable areas. A Class C building can sometimes be renovated to become a Class B building, but is unlikely to ever become Class A property — even with a complete overhaul — due to its smaller size and less desirable location.
Class C buildings are more likely to be occupied by small, family-run businesses, or newer companies that cannot afford higher-quality space. Since Class C buildings occupy the lowest price point in the area, they typically offer below-market rents.
What Else Investors Need to Know About Property Classes
While A, B, and C classifications most commonly apply to office buildings, they can also apply to other kinds of commercial and multifamily real estate projects, such as apartment buildings and retail properties.
No matter the property type, Class B and C buildings are usually sold at higher cap rates to compensate for the fact that they will require more in repairs and maintenance (R&M) costs in order to remain marketable.
Questions? Fill out the form below to speak with a commercial real estate loan specialist.
Related Questions
What is the difference between Class A, B, and C office buildings in commercial real estate?
Class A office buildings are typically the newest, most modern, and most desirable buildings in a given area. They are usually well-located, have plenty of on-site parking, and feature the latest amenities. They are often occupied by larger, more established businesses and command the highest prices in the area.
Class B office buildings are often slightly older (usually between 10-20 years old), have fair to good visual appeal, are somewhat well located, have a fair amount of on-site parking, functional HVAC systems, and decent quality management. Many Class B buildings are four stories or less, but they can vary greatly in size. In many cases, Class B buildings can often be returned to Class A with renovations. Class B buildings are often occupied by mid-market clients, such as a smaller, local businesses. These buildings occupy the medium price range for the area.
Class C office buildings are typically the oldest, least desirable buildings in a given area. They are usually poorly located, have limited on-site parking, and feature outdated amenities. They are often occupied by smaller, less established businesses and command the lowest prices in the area.
What are the advantages of investing in a Class A office building?
Investing in a Class A office building has many advantages. These buildings typically have high-quality construction, great location, top-notch management and lots of visual appeal, a high parking ratio, state of the art HVAC systems, the latest in security and communications systems, and best-in-class amenities (such as cafes, beautiful lobbies, valet service, etc.). Class A buildings are also typically quite energy efficient. These buildings occupy the highest-price range in the area, and are often occupied by prestige clients such as well-known law firms and banks. Because of this, Class A buildings are the most expensive, and often offer rents significantly above the area’s market average.
What are the benefits of leasing a Class B office building?
Leasing a Class B office building can offer a number of benefits. Class B buildings are often slightly older (usually between 10-20 years old), but they can still have fair to good visual appeal, be well located, have a fair amount of on-site parking, functional HVAC systems, and decent quality management. Many Class B buildings are four stories or less, but they can vary greatly in size. In many cases, Class B buildings can often be returned to Class A with renovations. Class B buildings are often occupied by mid-market clients, such as a smaller, local businesses, and they occupy the medium price range for the area.
Class B buildings can offer tenants a number of advantages, such as lower rental rates than Class A buildings, more flexible lease terms, and the potential for renovations to upgrade the building to Class A status. Additionally, Class B buildings may be more likely to offer tenants incentives such as free rent or tenant improvement allowances.
What are the drawbacks of investing in a Class C office building?
The drawbacks of investing in a Class C office building include that they are often much older (often 20+ years), need substantial renovation or improvements, may have little to no parking, don't usually have elevators or central A/C, and are often located farther from desirable areas. Class C buildings are more likely to be occupied by small, family-run businesses, or newer companies that cannot afford higher-quality space. Since Class C buildings occupy the lowest price point in the area, they typically offer below-market rents.
What are the most important factors to consider when financing a commercial real estate office building?
The most important factors to consider when financing a commercial real estate office building are cost, the building's quality and features, the needs of the buyer and potential tenants, the office market in which the property is located, and the potential for future growth.
The primary concern when buying an office property is cost — even if you can afford the price and mortgage payments, do the costs pencil, considering the building’s quality and features? While a low price may look attractive to buyers with limited capital, consider the costs of any improvements necessary to make the property useful to potential tenants. A cheaper building may, in the long run, cost far more than a larger initial investment in a higher-class asset.
At the same time, it may not be the best idea to splurge on the property that has the most features. There’s little sense in paying more money for something you or your tenants may not have any use for. Does it make sense to pay more for an office building with a slightly dated fitness center, or less for a property located near a retail center with a state-of-the-art gym? Consider your actual needs carefully.
Before you even start looking for an office loan, it's important to have a firm understanding of the office market in which you're looking to buy or refinance. They will have a measurable impact on the loan terms you will get — after all, your lender will have done their homework, too.
Not sure where to begin? Many major real estate investment brokerage firms, like Cushman & Wakefield, CBRE, and Colliers, put out regular reports — usually quarterly — covering what’s happening in most primary and secondary markets across the country.
Grab a cup of coffee, get a couple of those in front of you, and take a few minutes to research average rental rates, vacancy rates, and other key market indicators in your area. This will help you get a sense of the overall health of the market and the potential for future growth. Compare that with your property — how does it measure up?