Building grade is also known as building class, building rating, property grade.
Grade or class is the commercial real estate industry’s means of categorising properties by the same building type, by quality. The rationale is that objectively higher-quality properties can justify higher rentals.
Greater quality buildings allow for relatively lower costs as follows
- Office properties – lower per-staff-member costs due to
- greater space efficiencies (number of square meters or square feet per staff member),
- lower operating costs (due to lower energy or water uses) etc.
- Industrial properties: lower unit costs due to
- greater space efficiencies (more cubic meters to process product),
- lower operating costs (due to lower utility uses),
- optimised distribution times (due to shorter loading times) etc.
Ratings, depending on geography and the regulatory body can have the following designations:
- Stars: ranging from 5 to 1
- Classes: from A to F
- Grades: stepping from P, then A to C
Building grades are generally evaluated using the following framework
- Design and architecture (simple layout, lighting, finishes)
- Materials (durability of materials, glazing specifications)
- Infrastructure (power, lifts, air-conditioning and plumbing)
- Space (rentable and usable area ratios, floor plate dimensions, column widths, ratios of office to industrial)
- Access and location (proximity to transport arterials, access to public transport, visibility)
- Amenities / management
- Site / landscaping / exterior spaces
- Certifications (e.g. objective environmental / energy efficiency ratings)
Assigning properties with a building grade or building class indicates the competitive ability of each property to attract similar types of tenants. Further, such categorisation allows individual buildings to be compared within a market as well as across markets.
A building’s grade is determined by notoriously subjective criteria (using qualitative principles, and relying on relative (versus absolute) measures).
This makes it very difficult for tenants or occupiers, and investors, analysts, valuers and other property professionals to make meaningful comparisons and perform benchmarking exercises.
