An essential part of the commercial real estate sector, office buildings are divided into multiple categories based on their primary use type of office space or in different classes by features like age, location and amenities. As each category offers different market positions and profitability, understanding the specifics of all types of office buildings is key for CRE professionals to make informed, strategic decisions.
Office Properties by Use Type of Office Spaces
Office buildings are divided into categories based on their office space use types, each with unique layouts and functionalities to meet the needs of various industries. While some buildings are dedicated to a single use, most accommodate multiple uses. These multi-use office buildings have a primary use type, determined by the predominant type of office space, alongside secondary uses.
While the office sector faces challenges such as high vacancy rates and a dwindling supply of new developments, it’s important to note that some types of office buildings are navigating these challenges more successfully. Here’s a breakdown of the main types of office buildings by their primary use type of office space.
Traditional Office
The most common category, traditional office buildings provide a blend of private and collaborative work areas, with standard features including private offices, business video surveillance and security, areas for cubicles and common rooms. This setup appeals to companies looking for traditional space for lease in the long run, as they generally require leases ranging between 5 to 10+ years.
Coworking Spaces
Office coworking spaces provide rentable offices or desks in an open layout, complete with shared amenities for all tenants. Their main advantages are the short-term leases and all-inclusive rental fees, making them a flexible, hassle-free option, ideal for current office market demands.
As the nature of work shifts and the preference toward shared, flexible work environments increases, coworking spaces continue to experience growth.
Medical Offices
Medical office buildings (MOBs) are specialized facilities for health care services strategically located near hospitals or in easily accessible areas. MOBs feature advanced infrastructure to support medical equipment.
Life Sciences
Life science offices are custom-built facilities for biotech and pharmaceutical companies, providing an ideal environment for conducting biological and chemical research. They’ve been experiencing a surge in popularity post-pandemic, putting up robust construction numbers, according to Yardi Research data.
Research & Development
Research and development (R&D) offices are spaces tailored to facilitate innovation in the science sectors, excluding life sciences. These offices feature specialized labs, technical facilities and advanced infrastructure to support R&D activities.
Creative Office
Creative office space, defined by an open layout, reshapes the traditional office environment. These spaces embrace the concept of moving away from conventional private offices and cubicles in favor of open areas with low-walled workspaces or desks.
Office Buildings Classes
Office buildings are also categorized into different classes primarily based on quality factors like year built, current condition and amenities.
Class A
Class A office buildings are high-quality assets with premium amenities that are either new developments or have undergone significant improvements in recent years. They’re situated in prime locations with great accessibility, such as Central Business Districts (CBDs). A subset of this category are the Class A+ office buildings, elite structures with amenities that exceed the high standards of typical Class A buildings.
Even though office utilization has overall declined in recent years, the flight-to-quality trend persists — favoring Class A office buildings — as companies seek to provide attractive workspaces that compete with remote working options.
Class A and A+ office properties are known for their superior amenities, commanding rental rates significantly above the market average. However, the shift in the office market from CBDs and urban spaces to suburban areas has led to many Class A and A+ buildings in downtown areas struggling to improve office utilization and giving traction to calls for more office conversions.
Class B
Class B office properties typically feature older but well-maintained and functional buildings located in desirable areas. These buildings compensate through their reasonable pricing and potential for upgrades to Class A standards.
At the same time, Class B office buildings can represent valuable investment opportunities, as with the right enhancements, they can be elevated to Class A status, boosting their value and rental income. These types of assets could potentially be considered for office-to-residential conversions in order to repurpose their space to align with current market demands.
Class C
Class C office properties are the go-to for tenants seeking affordable, primary office space. Usually over 20 years old and offering minimal amenities, these buildings are located farther from prime areas and command rental rates below market average.
These properties present promising opportunities for redevelopment, potentially resulting in significant returns after refurbishment.
