Office
Office buildings come in all shapes and sizes, from 100-story glass and steel towers in Manhattan to a one-story bricker in Des Moines. Office properties are generally distinguished by height, location, and use.
Employment growth is generally a big demand driver for office, especially in those industries that are heavy office users like finance, insurance, or tech.
Although opinions may vary, offices are typically organized into three height classes:
- Low-rise: <7 stories
- Mid-rise: 7-25 stories
- High-rise: 25+ stories
Certain types of tenants will naturally prefer one height class over another. Big law firms, for example, might prioritize views to impress clients and attract top talent. On the other hand, creative tech users often prefer lower-rise buildings for the easy access to their office space to park a bike or bring a dog, and may not want to share space with the “old economy” tenants more often found in high-rise offices.
The next office classification, location, consists of two types: central business district (CBD) and suburban—think the heart of Manhattan versus Westchester, NY. While you might find the full spectrum of heights in the CBD, lower rents in the suburbs generally make the construction of high-rise and even most mid-rise buildings cost-prohibitive, which is why buildings tend to be shorter. But cheaper land means it’s easier to build out with an office park instead of up with a high-rise. Tenants attracted to CBD offices tend to be more established professional service or tech firms, while smaller or more emerging groups will be attracted to the relatively low rents found in the suburbs.
Finally, office buildings vary by use. The most common is general office use, with tenants primarily in white-collar professional services and/or tech. General office buildings will have few specialized tenant improvements. The sub-asset class of medical offices, however, might have significant tenant improvements and custom floor plans to accommodate specialized equipment, hazards, and privacy. Think dialysis centers or private practice doctors’ offices. These properties may be harder to convert to general office in the event that a major tenant moves out.
The final office subcategory is known as flex space, where a portion of an office building is used for heavier, more industrial, or technological uses. Overall, at least 75% of a building’s interior space needs to be designed and finished as office space in order to qualify as an office property type according to NAIOP.
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