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Philadelphia office space is a class act – but which class?

4/23/2014 | Real Estate Blog

In January, we promised to continue to demystify real estate jargon. We came across a column recently that reminded us of the common and often confusing classification of office space. There are three basic levels — class A, B and C — and there is room in every market for each type of property. The differences can be subtle, but they are important.

A broker, for example, may tell her client about a building that is a “class A” property. The designation gives the client the impression that the property is well-appointed, is in a great Center City location and has loads of amenities. The tenants are all professional firms — lawyers, accountants, investment bankers — and the rent is fairly high.

The question the tenant should be asking is what, exactly, does the broker mean by class A. If the broker is using the standard industry definition, the tenant can safely draw a few conclusions about the property.

First, age matters. In a city like Philadelphia, older buildings may have charm, but newer buildings have better HVAC systems, LEED certification and faster elevators, just to name a few assets. Class A space is shiny and new — and harder to come by in Philly. The real estate bust and the recession clipped the wings of developers of speculative space. Right now, the average age of Center City buildings is 50. Humans have mid-life crises at 50, and so do buildings if they want to maintain their Class A rating.

Just as the value of residential real estate is tied to location, commercial real estate is as well. Class A offices, however, are not necessarily in the middle of a city’s downtown business district. Here, again, commercial parallels residential: Some of the really nice buildings are in the suburbs, where employees live and can get to easily. In the past, access by car was important. Nowadays, Millennials prefer public transportation, and that can be a problem in areas that are not well served by trains or buses.

We keep talking about amenities, and we should explain what we mean. And we will — next week.

Source: Philadelphia Business Journal, “Jerry Seinfeld, babies and class A buildings,” Glenn Blumenfeld, April 15, 2014