While the work from home movement of 2021 has gained much traction, there is still strong demand for office space in both societal functions and as a profitable type of investment property. Historically office real estate was generally just finished shell space allowing for the tenant to fill with desks and furniture. However, recent changes in work culture has forced office property operators to focus on providing more tenant-retention amenities and even new subclasses such as “Coworking”.
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What is Office Real Estate?
Modern Office Space Explained
When most people think of office real estate (also called office space), they naturally envision tall square buildings that contain countless floors with people packed inside typing away on computers. While this may partially be true in some cases, office properties nowadays have evolved into much more creative spaces that often have favorable amenities. Office space nowadays are made with the end-user in mind and aim to create welcoming and productive spaces that are accommodating to modern lifestyles.
Office Real Estate Definition
Land and buildings that provide a workplace and working environment for primarily administrative, technical, and professional services.
Different Types of Office Buildings
Office buildings come in various shapes, sizes and uses. Shapes can range from square boxes, to futuristic spheres. Sizes can range from one-story, to hundreds of floors. Uses can range from administrative, to mixed-use with ground-level retail restaurants. Among the many types of differing characteristics, office properties are generally distinguished by Class, which include height, location, and use. Below we take a look at three most common Classes of office buildings:
Office Building Classes
Class A
At the top of the list for office buildings, Class A office buildings are considered to be the best in class for factors such as location, construction, and tenants. As the most prestigious building in its area, Class A offices seek premier tenants and command above average rental rates. Overall building upkeep and management is characterized as above-average.
Class B
The runner up for office space is Class B. These office buildings possess well-kept quality construction with limited amenities, but in a solid market location located just outside of central business districts. Although not as nice as Class A buildings, average rents for Class B are lower, but still above Class C. Overall building upkeep and management is characterized as average
Class C
Although last on the list, Class C office space holds a relevant position in the market. Conditions for these buildings generally are functional, but subtly dated in quality and located in secondary areas. Class C office space delivers functional space at below average rental rates. Overall building upkeep and management is characterized as below-average.
Other Types of Offices
Coworking
Coworking refers to workspace that is offered for lease for short-term to long-term periods in a shared setting. These spaces range from traditional private offices, to shared ad-hoc access to a lounge-type workspace full of amenities. Coworking spaces go far beyond just providing physical work spaces by also offering social events, lectures, access to business resources, and providing community for their entrepreneurial tenants. Some of the largest coworking brands include WeWork, Spaces, and Industrious.
Mezzanine Offices
Mezzanine refers to office space typically built within an industrial facility that is usually located along the perimeter of the building and creates an intermediate floor. Mezzanine offices are great for industrial property tenants that have a need for onsite office space. They are usually raised off of the ground floor on a second level to maximize valuable floor space, and can even double as a break room or conference room.
Typical Office Building Locations
Central Business District
Central Business District (Commonly called CBD) refers to the commercial and business center of a city. In larger cities, it is often synonymous with the city’s financial district and geographically coincides with the “city center” or “downtown”. Office real estate located in a central business district are usually characterized by high-density development, being high-rise with 25+ floors with structured parking and multiple elevators. Tenants are usually large and national household names such as banks, law firms, and other types of professional service companies. Office buildings located in Central Business Districts often sell naming rights on the top of buildings (i.e. signage located on top of the building facade) for both branding and leasability purposes. Below is a list of pros and cons:
Pros
- Centrally located with high walkability among highly desirable amenities such as performance venues, popular restaurants, and public transportation.
- Prestige and a strong professional presence demonstrates a respectable image to both clients and employees.
Cons
- Congested traffic conditions and unfavorable commuting requirements for daily employees.
- Rental rates and other associated costs are at a premium when compared to alternatives located outside of the CBD.
Suburban Office
Suburban office space refers to mid-rise office buildings that are located outside of the core of a city’s center. You can think of these buildings as the medium-sized building you often see sprinkled throughout commercial corridors that run through suburban neighborhoods. Their sizes range from 80,000-400,000 square feet and may not have an elevator depending on the height. Suburban office parks are a subtype of this type of office class, in which several of these low to mid rise buildings are assembled into a campus-like setting. Although amenities are usually limited, suburban offices have several favorable characteristics over central business district offices. Below is a list of pros and cons:
Pros
- Convenient location for employees and clients by not having to commute and fight downtown traffic.
- Rent pricing and other associated overhead such as parking, is more affordable than CBD office locations.
Cons
- Located away from popular major amenities commonly found in central business districts such as popular restaurants, public transportation and walkability.
- Limited number of Class A buildings in these secondary locations may present a challenge to find desirable amenities.
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Buy, Sell, and Lease Office Real Estate Online
Commercial real estate listing websites across the internet attract millions of visitors every year and streamline the buying, selling, and renting process. Office real estate investors and tenants use these platforms to easily find available properties in almost any market. Those looking to sell office properties or lease office space also benefit from these platforms by getting their listings in front of countless potential buyers and tenants.
Office Building Amenities
Office building amenities are provided by the building’s ownership to provide workplace balance for tenants and their employees. The degree of amenities at a particular building is usually dependent on the building’s class and location, among other factors. Below we take a look at some of the most common office building amenities based on building class:
Class A
- Lobby Concierge
- 24/7 Security
- Night and Day Janitorial
- Restaurant Dining Options
- Executive Suites
- Gyms and Fitness Centers
- Daycare Centers
- Lounges and Creative Spaces
- Valet Parking Services
- On Site Car Wash
- Electric Vehicle Charging
- Private Outdoor Space
Class B
- On-Site parking
- Exterior Security Patrol
- Nightly Janitorial
- Shared Conference Room
- Cafeteria and/or Vending Machines
- Common Outdoor Space
Class C
- On-site Parking Lot
- Shared Conference Room
- Shared Break Room and/or Kitchenette
Office Building Height Classes
Since office buildings vary so much in size, standardized height classes have been established to categorize office buildings by their height. Below are the 3 different types of office building height classifications:
- Low-Rise: Fewer than 7 stories above ground level
- Mid-Rise: Between 7 and 25 stories above ground level
- High-Rise: More than 25 stories above ground level
