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Categorizing space

There is no exact standard to classify office space. But generally, there are three classes that are widely used:

Class A Space:

• The newest, most modern facilities with higher ceilings, lots of natural light, and efficient large floor plates.
• Thrive on a contemporary look and feel.
• Usually have a LEED certification or equivalent ranking that denotes high quality.
• Offers advantages like location, overall size, number of elevators, HVAC system, energy efficiency, amenities (daycare, showers, bike storage and maintenance, etc.), and proximity to transit infrastructure.

Class B Space:

• May still be viable, but older and lacking modern (and desired) amenities.
• Fewer elevators and bathrooms.
• Older or lower-grade aesthetic elements (tile, ceiling panels, carpets).
• Well-maintained and functional, but needs significant renovation to rise to Class A.

Class C Space:

• Much older spaces with out-of-date structure and systems.
• HVAC system can¡¯t support the number of tenants.
• Smaller floor plate sizes can¡¯t accommodate large, collaborative workspaces.
• Can¡¯t support advances in office technology or workplace density.

Whereas Class C offices can¡¯t be retrofitted to fit Class A standards, Class B offices can sometimes be rehabilitated to become Class A real estate. However, many organizations avoid this approach. Why? Because the cost of tenant improvements (TI) and building renovations on leasing deals looks less attractive than simply moving to a new Class A facility. New buildings usually have higher leasing rates but lower operation and maintenance costs. Whereas, the opposite tends to be true for Class B and C offices.

So even though we¡¯ve witnessed a rising trend of companies moving back into city centers, the older downtown office spaces with last-generation amenities are viewed as undesirable¡ªand they¡¯re often left untouched by top-end building tenants.

The ¡®space¡¯ age

In cities like Boston and Toronto, there is a growing trend to develop large office spaces before securing any building tenants. But that doesn¡¯t sound like a good way of doing business, does it? Well right now, the?flight to quality?mindset is so prominent that developers are confident that companies will flock toward new, modern spaces¡ªso they provide them. According to?National Real Estate Investor, 2018 was expected to see the highest level of speculative office construction yet.

When it comes to Class A, one of the most distinguishing characteristics is space. Modern trends in office design call for both higher densities (space per worker) and larger floor plates to facilitate cross-pollination between multiple teams by putting them all on the same floor. But many of the older B- and C-Class spaces are built on smaller plates that don¡¯t permit large numbers of staff to be on the same floor. Moreover, older spaces often have more columns and restrict the open-concept design and floor layout efficiencies that are highly-desirable right now.

The challenge?

Space can¡¯t be solved with cosmetic improvements, better wiring, or sleeker design. Additionally, a greater amount of space strains older mechanical systems. Consider the amount of technology and people in the workplace now compared to 20 years ago. The density of people, and the devices that they use, per square foot/meter has gone up by 200¨C350% in most markets. The drastic increase in people, gizmos, and gadgets taxes old HVAC systems and compromises the airflow and comfort for tenants¡ªmaintaining a right-temperature environment with consistent fresh air is key to supporting a compact workforce in older buildings.

Location matters

The?flight to quality?will result in a rise in the number of vacant, undesirable Class B offices. As we know, Class A spaces have better HVAC and amenities, high-quality materials, and better parking options. But older Class B spaces have one key built-in advantage: location.

As many Class B and C spaces are found in central business districts or city cores, they¡¯re usually set near important infrastructure like transit services. Most cities are strategically designed so that transportation infrastructure converges at the core, with libraries, museums, and other large civic institutions located there as well.

For the most part, a city¡¯s downtown is its brand. If a downtown is bustling at noon but devoid of people at night, it leaves a poor impression of the city overall. If the downtown energy carries well into the night, people will spend more time there. Remember: while downtowns average just 1¨C3% of city land, they account for 10¨C30% of the citywide tax revenue. So, if there are more people and activity downtown, the whole city feeds off it.

A new life for old buildings

Class B and Class C office space that looks unattractive to business tenants presents a great opportunity for urban planners. While businesses continue to look for large office spaces on the outskirts of cities (or beyond), the spaces they leave behind can be repurposed. Think rental housing, boutique hotels, and senior housing. These kinds of facilities don¡¯t require ultra-modern amenities like gyms and childcare centers, nor do they need the kind of mechanical systems to support hundreds of workers in a small area.

Consider our project at?360 Newbury Street?in Boston, a great example of how underperforming office space can not only be converted but can thrive as something new. We took the former offices of the Wurlitzer Music & Sound Company and transformed the top five floors of the building into coveted, beautiful residential space. In a building built in 1918 and transformed by Frank O. Gehry¡¯s architectural work in 1989, we were able to turn undesirable office space into a premier address.

For the cities that don¡¯t have healthy central business districts, the tools to revitalizing Class B and C office space are different. In these circumstances we recommend the following tools be utilized:

1. Ensure that the downtown land use zones allow for adaptability and flexibility of use, form, signage, encroachment (patios and podiums) and parking requirements (i.e. little to no parking required);
2. Leverage tax incremental financing (TIF) or value capture through a district to create a pool of money that can be accessed to subsidize building owners to create new housing or hotels, conduct expensive asbestos abatement, upgrade mechanical systems and elevators, improve the public realm, and do exterior cladding modernization and storefront improvements;
3. Permit nuisance related bylaw standards to be abated temporarily during renovations and alterations to allow for expedited construction (thus reducing costs);
4. Provide financial incentives such as grant money per each unit of new housing in the range of $10,000 to $30,000;
5. Invest in public-realm improvements (street trees, benches, pedestrian oriented streetlights located below the tree canopy, cobblestone/pavers, mid-block crossings and bulb outs) and urban design improvements of the first 30 feet of building facades through general revenue or TIFs; and
6. Utilize multi-year tax abatement as an incentive for said improvements.

Moving people downtown is one of the best things that a city can do. Using aging office spaces to create new housing options tackles two problems at once. Not only will these buildings have a new purpose, but a downtown in need of revitalization can generate revenue and thrive long after business hours. Retrofitting premium office locations is a positive, cost-effective way to liven up a city¡¯s most important district. When you also repurpose Class B and C office space, you lower the office vacancy levels and create a better market for new Class A office space construction. The latter of which is critical for cities to be able to attract and retain top talent and top businesses.