The office sector has a wide variety of tenants and building types. In the central business district of major metropolitan areas, office buildings can rise more than 40 stories and are leased to high quality, often national and international businesses. Larger corporations will own their own buildings and occupy the entire space, but generally, office space is leased on long term leases to multiple tenants. Tenants in multi-story buildings will either lease an entire floor or multiple floors, depending on the size of the company. Suburban office space is located in midrise and single-tenant buildings. Many office buildings are located close to transportation hubs such as airports and highways in order to easily facilitate business travel. These types of locations are also advantageous in that they give the business high visibility. Professional building and property managers usually maintain and operate office buildings on behalf of the owner. Office buildings are rated by class from A to C depending on the age and quality of building, location, the quality of the tenants, the amount of rents commanded, and the management.
Information on this page provided courtesy of Cornell University Baker Program in Real Estate
Class A: New to newer buildings, Excellent locations (Central Business District), High quality tenants, Professionally managed
Class B: Little to no deterioration in building quality, Good locations, Good tenants, Professionally managed
Class C: 15 to 25 years old, Good to mediocre locations, Steady occupancy of tenants, Good management
Looking to the Future
The success of the office real estate sector is driven by the strength of the economy, in particular job growth. As companies expand and businesses grow the increased demand for office space spurs development and increases rents. Unfortunately, the recent events in the financial markets have shaken the foundation of the office sector. As rents decline, prime space that was once unavailable to some companies now seems affordable, and they will forgo the secondary office markets for the best locations. As the economy continues to recover, consumers increase spending, and jobs are created the office sector will grow once again.