What is Class A Office Space, and Is it a Good Investment?

By Published On: August 3, 20227.6 min read

A wide-open glamorous lobby, floor-to-ceiling windows, multiple elevators that take you to floors with incredible views, and countless amenities. These are some of the characteristics that indicate you’ve stepped into a Class A office space.

This guide breaks down the characteristics of Class A office buildings and the benefits and drawbacks of investing in this property class, according to real estate professionals.

What Is Class A Office Space?

Class A office spaces are the best offices you can rent in a given real estate market. They are the newest buildings with the best, most up-to-date amenities, 24/7 concierge and security, modern interiors and a prime location. Some CRE pros refer to Class A product as “trophy” properties.

“[Class A offices] are considered the highest quality office buildings in a market and are usually outfitted with modern top-of-the-line fixtures, columnless floor plates, have expansive amenities, and their infrastructure — HVAC, elevators, technology systems — are premium,” Paul Tesdal, Senior Director at commercial real estate brokerage firm Greenstone Partners, told Leverage.com. These commercial office spaces also command the highest rent in their given market.

Real-World Examples of a Class A Office Building

Here are some real-world examples of what Class A office buildings look like and the kinds of amenities they provide:

One World Trade Center, Manhattan, New York

One of the most iconic buildings in New York City, One World Trade Center is a 104-story skyscraper with floor-to-ceiling windows on every floor. This building houses some of the world’s most successful and well-known businesses. In addition to the amenities a Class A office space typically provides — like upscale common areas, a cafe and a conference space — the building also has a three-story observatory with a steakhouse, a cocktail lounge, and a meeting space with unforgettable views. One World Trade Center is also conveniently located to a high number of transportation options, including 11 subway lines, ferries, the New Jersey PATH and buses.

Three Illinois Center, 303 E Wacker Drive, Chicago, Illinois

303 East Wacker in Chicago has it all, from restaurants to banking and exercise facilities. Located above the RiverWalk on Chicago’s East Loop, the building has fully modern elevators and will soon have a new gym and tenant lounge at the top of the building. Though the 30-story office building was built in 1979, it is located in a prime location and offers the most impressive amenities available, making it a Class A office space.

The Assembly, 301 N Crowdus St, Dallas, Texas

With a rooftop terrace for tenants, multiple fully-equipped conference spaces, and contemporary interior design in an area close to transportation, the Assembly in Dallas, Texas hosts some of the biggest companies and brands as a Class A office space.

Class A vs Class B Office Space: What’s the Difference?

Real estate properties are classified on a Class A/B/C scale. While Class A office spaces are top-of-the-line, Class B office spaces still offer solid quality, but the building may be older or in a less central location. Class C offices tend to be buildings that are either 20 years or older, are in less desirable areas, or both.

“Class B office buildings and spaces do not have the same quality of build-out and usually lack the architectural details, impressive lobbies, and amenities compared to Class A properties,” Tesdal explained.

According to Tesdal, in our post-pandemic world, tenants have increased demands and requirements for their offices that Class A is positioned to meet. “[Class B offices] are still functional but lack the appeal that attracts premier tenants, especially in today’s marketplace where the live-work-play experience is in more demand as we navigate the remote work, in-person hybrid,” he explained.

To illustrate how this preference for Class A offices can play out in a city, Tesdal provided an example. “In Chicago, this is evident by a greater positive absorption in new office construction compared to multi-generation assets,” Tesdal said.

He shared that the Fulton Market area, which has seen tons of new office developments, has been a success story to date, while many older buildings along former premier corridors in The Loop or Central Business District are not performing as well. This “flight to quality” trend has occurred outside of the office market as well.

Investors will have different strategies when it comes to Class A and Class B offices. While Class A offices are in the best condition possible, Class B offices can often be improved with value-add strategies, potentially bringing the building to Class A standards. Many investors take this approach because it can lead to a higher return on investment when successful. But Tesdal added that the capital cost for renovations is paramount to whether the investment will pay off.

Benefits of Investing in Class A Office Space

As the best-quality properties in the market, Class A offices attract the best tenants with the strongest credit, which is one of the benefits of investing in this asset class.

The other benefits include higher rental rates, stronger lease terms and fewer capital expenditures given that the building is newer and more efficient. These advantages also typically translate to more attractive terms for borrowing against the asset.

The newer systems also have lower energy costs for the tenants, due to their efficiency. “Lower environmental impact is also a benefit. Buildings that operate more efficiently have reduced occupancy costs for tenants, which attract and help retain them.

All these factors equate to more stable returns during a hold period and more demand from the market upon asset disposition if it is positioned for sale at the right time with the right dynamics at play,” Tesdal explained.

Drawbacks of Investing in Class A Office Space

Of course, given their cost, Class A office spaces are only suitable for a specific type of investor and tenant. Because Class A properties are the absolute best the market offers, the owner will need to stay on top of new amenities and trends, and that might come with extra costs.

“Anything new will age; so, at some point an owner will have to deal with upgraded aging systems or technology and plan on renovations to continue to position an asset at the top of the market,” Tesdal said.

Class A spaces may price out many tenants, while Class B spaces cater to a wider range of tenants and budgets. “An additional drawback is higher rental rates which means marketing to a more specific pool of tenants who can afford those occupancy costs,” Tesdal added.

How Much Does Class A Office Space Cost Per Square Foot?

The cost of a Class A office space per square foot will largely depend on where it’s located. Of course, the quality of the physical space is also important, but there’s a huge range of prices depending on which city you are considering.

For example, 61 Broadway, a high-rise building in New York City’s financial district will cost $80 per square foot. That’s cheaper than some office spaces in midtown which charge $100 per square foot, but it’s much more expensive than other top cities across the U.S.

In Chicago, Los Angeles, Atlanta and less central areas of NYC, many Class A offices are available for lease for $25 to $30 per square foot. Prices can be as low as $9.50 per square foot, such as for this newly renovated office space in Los Angeles.

Tenant Improvements and Class A Office Buildings

Given that Class A office buildings are in top condition with the highest rents, there doesn’t tend to be a lot of tenant improvement for this property class.

“From a tenant’s perspective, Class A and Class B offices are hard to work with when the tenant intends to be creative. Class A and Class B office landlords generally limit the renovations and improvements that are allowed to be made, while Class C and D offices pull in the creative types who make workspaces hip,” Kyle Southard, Licensed Real Estate Agent at Pinnacle Realty Advisors, explained. Class A and B tenants are typically looking for an office that’s ready to go, rather than a space with potential for improvement.

“I’ve seen plenty of well-earning companies rent in Class C and D spaces because it means they can pay 50% less in rent, but pour their leftover rental allowance into tenant improvements,” Southard explained. He added that one of his clients rented an office for $350/month full-service and poured $7,000 into improvements of his 356-square-foot space to make it his dream office, which wouldn’t have been permitted in a Class A or Class B space.

Luxury Offices For Premium Prices

Class A offices are the best offerings in any given real estate market. They are considered safe and solid investments, given the tenants they attract, but are priced at a premium. Investors are offering top-quality service to tenants who expect the best and must therefore stay on top of any potential upgrades necessary to keep the building attractive for this specific market.

Since the pandemic has led to a rise in remote and hybrid work, some industry professionals believe Class A office spaces, which tend to offer tenants much more amenities and flexibility, are particularly attractive in the new world of hybrid work.

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