Class Designations For Commercial Properties
Shopping for commercial property requires a working knowledge of the industry and the lingo. Whether you are an investor looking for a property to lease or a company owner looking for a new location, it is important to understand the different class designations for commercial properties. These class designations are generally used for office space, but they can also be applied to warehousing and, in some cases, industrial property as well.
One of the biggest misconceptions about commercial building classifications is that every new office structure built is automatically a “class A” structure. This is not true, as there are several criteria that go into identifying a “class A” commercial structure. A “class A” property considered the most prestigious type of property in the area. It has a clean and well-kept cosmetic look, it is loaded with the latest state-of-the-art services, and it is located in a prime area.
The idea of a “class A” structure can be confusing to some often because of the location. What seems like a prestigious location to one business owner may be inadequate for another. The idea of a commercial class is based on general perceptions, and the property value for each property.
A “class B” facility has rents that fall into the regional average, offers a fair to good experience for tenants and their customers, and is considered to be in high demand. Most of the commercial real estate bought, leased, and rented in the United States is “class B.” These are facilities that are kept clean, offer an appealing cosmetic look, and have systems that meet the current needs of the average commercial client.
It is more common for a “class B” facility to be allowed to fall into a “class C” condition than to be upgraded to “class A.” Most “class B” buildings are in areas where the property values are traditionally average, and show no sign of increasing any time soon.
A “class C” structure has rents that are either at or below average in facilities that are located in low-value areas. It is not uncommon for “class C” buildings to routinely require maintenance that is neglected for some time. Tenants should expect that even the most basic services are not reliable, and the cosmetic look of the facility is below average.
Many business professionals who decide to rent or buy “class C” properties try to arrange it so they can do their own remodeling to improve the facility. It seems like a good idea to get a bargain office space and fix it up, but most “class C” property owners will want to raise the tenant’s rent when the property is improved. For “class C” building owners who buy their properties cheap and improve them, they can expect a new tax assessment after their completed renovations which is usually followed by higher property taxes.
There are millions of units of each type of commercial space in use throughout the country. It is important to remember that something considered a “class A” in one area might only be a “class B” in another part of the country. In most cases, the class ratings for commercial property are used to compare properties in the area to each other.