Commercial real estate generally refers to properties where business activity is conducted, and usually includes a wide spectrum of categories, including office buildings, industrial warehouses, retail stores, hotels, malls and even large residential apartment complexes.

For purposes of this site, commercial real estate will focus on office buildings (not leased office space). Other types of commercial properties will be covered in separate categories.

According to the Business Owners and Managers Association International (BOMA), there are three classes of commercial buildings:

  • Class A Buildings:  Are the “most prestigious buildings competing for premier office users with rents above average for the area.” and “have high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence.” In many instances, trophy high-rises in major metropolitan areas that serve as corporate headquarters or are anchored by major corporations are considered Class A buildings.
  • Class B Buildings:  These are “buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area.” Typically Class B buildings can be difficult to identify, with many Class B owners assigning a Class A description to their building.
  • Class C Buildings:  “Buildings competing for tenants requiring functional space at rents below the average for the area.” Many smaller business enterprises and professionals such as doctors, CPA’s, architects, etc. conduct their operations out of Class C Buildings.

A major concept in commercial real estate is that of cap rate, which calculates the rate of return on a given investment property given its value and the net operating income (NOI).

Capitalization Rate = Net Operating Income/Value