West Virginia Shows Off the ABCs of Office Buildings

Publication: The State Journal
Published: 22 April 2005 (Volume 21, Number 16)
Headline: Drawing a NEW crop of companies
Byline: Howard Swint, McCabe-Henley LP

West Virginia’s wide variety of office buildings is a good representation of the commercial real estate market throughout the midwest and lower Great Lakes industrialized region.

These office towers, most of which were built in the 1970s and 1980s, offer “Class A” space — a somewhat arbitrary classification driven in large part by market forces and the supply of existing buildings inventory.

Class A properties often enjoy greater demand from high-end users, which, in turn, generates higher lease rates. Correspondingly, older masonry constructed Class B & C buildings realize lower lease rates due, in part, to greater vacancies and other economic conditions.

What exactly drives demand for all classes of office space varies, however, from market to market. Tangible features such as upscale finishes, on-site parking and in-house maintenance and security services create interest from prospective lessees. Paradoxically, intangibles such as the prestige of existing tenants and window views close the deals.

Given the subjective nature of these amenities, building owners typically try to market their buildings with the highest possible classification, which has given rise to confusion as to what Class A-C definitions actually mean.

As a result, the Building Owners and Managers Association (BOMA) has created definitions based primarily on going rental rates that are above (Class A) or below average (Class C) for a given market. Also included in the definition is the condition of a building’s exterior and interior with high-quality finishes required for Class A designation along with “a definite market presence.”

State-of-the-art HVAC systems and “exceptional accessibility” also are BOMA requirements for Class A space, whereas Class B simply requires systems that are adequate. Class C space is defined simply as “functional space at rents below average for the area.”

Of course, individual property owners can reposition their buildings in the marketplace by making physical upgrades that can improve their class designation. This has been the primary challenge of Main Street programs throughout the state, with Charleston’s Village District arguably the most successful example

CBD vs. Business Parks

In Charleston, most modern office towers are marketed as Class A and both the rent and vacancy rates support the classification. One Valley Square, United Center, Bank One Center, Huntington Square, City Center West, and Laidley Tower, the state’s tallest building, all qualify as Class A as they have above average rental rates

In a different market, however, these buildings may or may not be considered Class A as their classifications could shift depending on the existing inventory and rental rates of competing building stock.

For example, in Pittsburgh these same buildings, depending on their location, may or may not be considered Class A whereas in Huntington they most certainly would.

It’s important to note that just because a building is a comparatively new office tower doesn’t necessarily mean that it’s Class A space. As mentioned previously, location in or near the city’s central business district (CBD) and condition of the building can have a significant bearing on market demand especially when taking into account the type of tenant desiring office space.

While not quite as important as in the past, close proximity to the various courthouses and amenities within the heart of the CBD still remains desirable to some law firms. And with some professions such as the medical arts, clustering of like tenants provides economies of scale as well as prestige appeal.

While downtown glass curtain office towers and renovated brick and mortar buildings typically comprise the upper end of any given city’s commercial office market, new business parks located outside of the CBD also offer Class A amenities.

The amenities can include health clubs, dining facilities, and full ADA compliance — all on the first floor with ample surface parking just outside the building entrances. These features alone make the case for Class A designation despite distant proximity to the CBD.

As with most things economically derived, demand for office space is an inexact science influenced by any number of factors but none greater than what the market will bear.