Class A and A+ properties are considered extremely lucrative investment opportunities. They represent the highest quality construction, luxury office or commercial buildings, typically located in highly desirable urban areas. Beyond these factors, Class A and A+ properties are situated in prime locations, with access to the best amenities, and a caliber of tenants that command the higher rents and property values.
There’s growing evidence that the office market — at least amongst Class A and A+ properties — is becoming a viable investment again. Colliers recently rated the 10 best office markets from 2024 based on total volume in its Q4 2024 Office Investment & Leasing report. According to the commercial brokerage firm, this is a rebound despite having faced one of the toughest declines (reaching bottom in 2023), calling the asset class a “leader in year-over-year sales gains.”
The top 10 markets in volume are:
- Manhattan ($7.6 billion, up from $5 billion)
- Los Angeles ($3.7 billion, equal to 2023)
- Boston ($3.2 billion, up from $2.6 billion)
- Dallas ($2.9 billion, up from $2.5 billion)
- Washington, D.C. ($1.9 billion, up from $1.4 billion)
- Houston ($1.8 billion)
- Atlanta ($1.8 billion, up from $1.2 billion)
- Miami ($1.8 billion, up from $1 billion)
- Phoenix ($1.7 billion, down from $1.8 billion)
- Austin ($1.6 billion, up from $900 million)
To better understand this trend in commercial real estate, let’s examine the 6 factors that are shaping the current market and economic conditions making class A and A+ properties viable investments once again.
- Post-pandemic shifts: The pandemic certainly prompted people to reconsider where they live and work. As Colliers’ report states, there are signs of teardowns/rebuilds emerging, with many 1990s properties being looked to as redevelopment plays. Tenants want properties that offer a high standard of living. High-end office space is also particularly appealing, especially for investors with access to cash or funding. High-quality assets in prime locations are big business, as noted in the Colliers report.
- Strong market liquidity: Historically, Class A and A+ properties have appealed to institutional investors such as REITs (Real Estate Investment Trusts), pension funds, and private equity firms because of their relative stability and predictable cash flow. Institutional investors, as of late, have been more active in the market. This is driving demand and making the asset class a more viable investment again. While interest rates increased from a few years ago, they are still relatively low when compared to historical levels, particularly for prime properties. Therefore, financing Class A and A+ properties is more attractive and realistic for investors.
- Capital appreciation potential: During periods of economic slowdown, class A and A+ properties are typically more resilient. For the investors, this increases their focus on long-term value preservation. As this asset class tends to attract more high-income tenants and/or businesses, the likelihood of defaulting during economically challenging times is typically lower. Investors view this as a safer long-term investment, especially with the uncertainty in the market. Well-located Class A and A+ properties in prime locations and markets have traditionally shown a strong potential for long-term capital appreciation.
- Supply and demand: While Colliers’ report mentions the emergence of rebuilds and teardowns in the market, costs of construction and materials have increased. It’s becoming increasingly more expensive to develop new properties. This limits the supply of new Class A and A+ builds, particularly in high-demand locations, further enhancing the value of many existing properties. With limited inventory and the long timeframes that come with new construction, scarcity drives up demand for existing Class A and A+ properties, making them more appealing to investors.
- Growing urban centers and revitalization: Many major cities are undergoing revitalization and new growth with investments being made in infrastructure, transportation and amenities. Class A and A+ properties situated in fast-developing urban centers are benefiting from growth and gentrification. Tenants want proximity to the best lifestyle and business options and people with higher disposable income are inclined to pay for a better quality living and workspace.
- Sustainability and eco-friendly design demands: The focus on green buildings and sustainability is becoming more popular with investors because of environmental concerns and consciousness. Class A and A+ properties are known for meeting higher standards. Many are adopting more eco-conscious designs, making investment more viable for today’s investors.
Why it’s smart to bank on a Class A and A+ property
The Class A and A+ assets are historically resilient, and their stability is what makes them an attractive investment option. These high-end quality properties offer the long-term value an investor seeks, while also attracting institutional investors. With major cities experiencing significant urban growth along with the shift favoring more sustainable practices the attraction is apparent.
At Landmark Title we understand the complexity of Class A and A+ transactions and all the possible scenarios that could happen in the closing of such properties. Our team of experienced commercial title and escrow officers work diligently to anticipate and overcome challenges and ensure a secure transaction. To learn more about our services and clients we provide escrow and title services for click here. If you have any questions or are interested in working with Landmark Title, please get in contact.