When considering office space, insurance carriers need to apply certain guidelines in determining rates. Those whose business in commercial property rating understand that office buildings are generally classified as being either a Class A, Class B, or a Class C building. The difference between each of these classifications varies by market and class.
Both Class B and C buildings are generally classified relative to Class A buildings. Building classifications are used to differentiate buildings and help the reporting of market data in a manner that differentiates between building types. While there is no definitive formula for classifying a building, most experts use the general characteristics of each as follows:
These buildings generally represent the highest quality buildings in their market. They are most often the best looking buildings with the best construction, and possess high quality building infrastructure. Class A buildings are situated in prime locations in relation to the needs of its tenants, have good access, and are professionally managed. Therefore, they attract the highest quality tenants and can also command the highest rents.
Class B buildings are generally a little older, but still have good quality management and tenants. Investors will often target these buildings as investment opportunities since well-located Class B buildings can be upgraded to a Class A rating through renovation, such as facade and common area improvements. Class B buildings are generally quite functional and often well maintained.
The lowest classification for an office building is Class C. These are older buildings (usually more than 20 years old), and are located in less desirable areas and are in need of extensive renovation. From an architectural standpoint, these buildings are the least desirable and building infrastructure and technology is often out-dated. As a result, Class C buildings have the lowest rental rates, take the longest time to lease, and are often targeted for re-development.
While no formal international standard exists for classifying a building, one of the most important things to consider about building classifications and commercial property rating is that buildings should be viewed in context, and relative to other buildings within the sub-market.