Types of buildings and office space. What does it all mean?

Dec 22

Written by: THE CABOT GROUP
12/22/2011 11:48 AM  RssIcon

Submitted by D. Saperstone
Commercial properties, a very broad category that includes just about every type of real estate, often forms the backbone of an investment portfolio. Those of us charged with managing commercial properties for investor owners, have a responsibility to maintain the physical asset---the building(s) --- and maximize the net operating income. Protecting the physical asset involves tending to the property’s maintenance needs on a day to day basis and implementing a long term strategy for capital expenditures that will protect the property’s reputation in the marketplace. A good maintenance plan, supported by qualified, customer service focused personnel, produces results that are visible and easily measured.

Maximizing a property’s net operating income is arguably the single most important component in the valuation of investment properties. In order to maximize net operating income, an investment property needs to be fully or nearly fully occupied. The task of keeping occupancy rates high involves two principle components: Keeping existing tenants happy with the building and the services a property manager provides and attracting new tenants to the property. It is the latter task that often produces a discussion relating to the definition of terms used in the lease negotiations process.What differentiates a Class A building from a Class B building? What’s the difference between useable area and rent-able area? What makes a building “flex”? The real estate industry does have generally accepted definitions for these terms.    
Class “A” Building-Most prestigious building competing for premier office users with above average rents. These buildings have high quality standard finishes and systems, exceptional accessibility and a significant market presence.
Class “B” Building-These buildings compete with a wide range of users with average market rents for the geographical area. Building finishes are fair to good, systems are adequate but the building can no longer compete with Class “A” at the same rental rate.
Class “C” Building-These buildings show significant obsolescence and have not been brought to current market standards.
Flex Space-Space that has been designed to accommodate either office or light manufacturing/warehouse uses.
Usable Area- A calculation of the area of a tenant space determined by measuring from interior wall surface to interior wall surface. In today’s marketplace, this measurement is primarily used by interior designers/space planners involved in office layout, circulation patterns and furniture placement.
Rent-able Area- A calculation of the area of a tenant space that incorporates the usable area as well as a pro-rata share of the building’s common area. This is the most common measurement tool in use today. It is this calculation that most often defines the premises in a commercial lease and, therefore, is an integral part of the annual rent calculation.

The Cabot Group understands the challenges associated with maximizing net operating income and increasing property values for owners/investors. We deal with existing and prospective tenants every day and have a solid understanding of the market forces at play in local, regional and national arenas. We are the real estate professionals who expertly handle the tools of our trade and have the answers when a client asks, at the end of the day, “What does it all mean.”     

Learn more about types of office space at http://www.boma.org/Resources/classifications/Pages/default.aspx

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