In today’s office market, value is no longer a simple function of headline rents. Between shifting workplace preferences, higher capital costs, and hybrid occupancy patterns, investors and occupiers are reassessing what “good value” really means. Class A and Class B assets each present distinct risk–return profiles, and the right choice hinges on strategy, capital structure, and the specific demand drivers in a given submarket.
Cost efficiency and total occupancy expense
The rental rates of Class A office space are typically higher than Class B office space. However, Class A office space typically has lower total occupancy costs on a per employee basis due to many factors, including newer systems, more efficient HVACs, higher levels of natural light, and flexible floor plates, allowing for reduced density friction and improved utilization rates.
By utilizing Class A’s operational efficiencies (smart-building controls, submetering, and advanced access), it’s possible to lower the amount of physical office space an employee needs to utilize without sacrificing employee experience.
On the other hand, Class B provides a lower sticker price; however, the potential for hidden costs to negate this advantage exists. Many Class B buildings have older mechanicals, deferred maintenance, and less efficient layouts which all contribute to greater energy costs and tenant improvement allowance costs.
When tenants are required to lease more square footage to achieve the same functionality or when tenants must invest heavily in retrofitting Class B office space, the initial rent discount becomes significantly lower when evaluated on a fully loaded basis.
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Capital expenditure and repositioning risk
For owners, the capex curve diverges sharply by class. Class A typically requires lighter near-term investment given newer construction and modern specs. Amenity upgrades tend to be incremental—wellness suites, conference centers, or hospitality services—geared toward differentiation rather than life-safety overhauls.
Class B assets can offer compelling basis plays, but only with disciplined underwriting. Elevator modernizations, façade and envelope work, code compliance, and ESG-driven retrofits (air quality, electrification, glazing) can strain pro formas. Repositioning from B to “A-minus” is feasible in select locations, yet execution risk rises with each regulatory layer and supply-chain constraint.
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Demand resilience and leasing velocity
Leasing momentum favors well-located, amenity-rich Class A. Flight-to-quality remains pronounced as employers use the workplace to attract and retain talent. Trophy and top-tier A buildings typically see shorter downtime, stronger credit rosters, and longer lease terms, which support stable cash flows and more liquid exits.
That said, value-driven demand persists for Class B in budget-sensitive industries and government or back-office functions. In tight submarkets with limited new supply, functional Class B with solid bones can maintain decent occupancy. However, leasing velocity often depends on aggressive concessions and flexible deal structures to compete with upgraded A product.
Risk-adjusted returns and exit liquidity
Investors prefer Class A because Core and Core Plus properties are typically more durable and easier to finance. Lenders favour high-quality (Class A) properties as collateral because of the lower exposure to risk of default when compared with lower quality collateral. Due to the higher quality of Class A assets, institutional investors will have more options and more exit liquidity when it comes time for them to exit their investments, even during unpredictable markets.
On the other hand, investors using an opportunistic strategy may achieve a higher IRR by investing in Class B properties. For Class B assets, the investor’s margin for safety is gained from purchasing them at the right price and then implementing a value-add program to address any functional obsolescence. Identifying and executing successfully on an opportunistic strategy requires deep market knowledge, being precise with capital expenditures (capex) and developing a clear strategy for achieving stabilized occupancy at competitive economic rent levels.
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Value is context-dependent
There is no universal winner. For occupiers prioritizing talent, sustainability, and flexibility, Class A often delivers better value despite higher rents. For investors with value-add capabilities in submarkets where demand is broad but price-sensitive, thoughtfully repositioned Class B can outperform. The optimal choice is the one that aligns asset quality, location, and capital strategy with the realities of today’s evolving workplace.
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