Class A vs. Value-Add Office Space: Which Strategy Holds the Real Value?

How Value Is Recorded in Value-Add Office

This is where things get tricky. The value of a new Class A building is easy to measure: it’s driven by build-to-suit rents, strong covenants, and modern specs that align with market expectations.

But with value-add assets, value is not static it’s dynamic. It must be created, measured, and often proven through execution.

Here’s how:

1. Below Replacement Cost Advantage

Because many value-add buildings trade at 40%–60% of what it would cost to build new, they offer a fundamental pricing advantage. That low basis gives owners more flexibility on rent and return hurdles.

2. CapEx vs. Rent Lift

Modernizing outdated lobbies, corridors, HVAC, and bathrooms—plus building spec suites—can result in rent premiums of 20%–30% over pre-renovation rates. The capital invested is recorded as an asset improvement, but the real “value” shows up when that work translates into higher occupancy and longer leases.

3. Net Operating Income Growth

Here’s where true value appears on paper: as leases are signed and rents roll up, NOI improves. And since commercial real estate is valued based on income, each dollar of NOI growth increases valuation by $10–$15 (depending on the cap rate).

Example: Increasing NOI from $500K to $1.2M at a 6.5% cap rate raises the building’s value by over $10 million.

4. Delayed Appraisal Recognition

One challenge is that appraisers are often backward-looking. Until occupancy stabilizes and leases season, many lenders will not credit the full future value of the building. This makes value-add success harder to finance, but also creates opportunity for well-capitalized buyers.

What Makes a Value-Add Office Redevelopment Work in 2025?

To compete with Class A, a value-add building can’t just look better—it has to work better for modern tenants. That means:

• Flexible Floorplates for hybrid work configurations

• Strong Digital Infrastructure including fiber and 5G

• Indoor Air Quality and ESG Improvements, even if not LEED-certified

• Spec Suites with turn-key buildouts for fast leasing

• Activated Common Areas that bring community and hospitality into play

In today’s market, success isn’t about being cheap—it’s about being strategically better.

Where Does the Market Go from Here?

The office market has become bifurcated, but not in the way most people think. The real divide is between:

• High-functioning, relevant buildings (whether new or repositioned), and

• Obsolete buildings with no investment path forward

This creates an opportunity. While many outdated assets are being considered for demolition or conversion, there is still a place for some of those buildings with the right bones, location, and flexibility to be reborn as desirable workplaces.

In fact, some of the best risk-adjusted returns today are being found in these buildings because the upside is hidden, waiting to be recorded through execution.

Conclusion: A Market of Two Tracks

If you’re a tenant seeking best-in-class amenities, brand equity, and a return-to-office strategy built around workplace experience, new Class A space is likely where you’ll land. These buildings are commanding rents, but they’re earning them.

If you’re an investor or owner with a sharp eye, local knowledge, and access to CapEx, value-add may be your best path to long-term upside. The market isn’t just pricing buildings—it’s pricing execution.

And the winners in this cycle will be those who know how to unlock value, not just inherit it.

Are you sitting on an underutilized office asset? At Van Vlissingen & Co., our team of commercial real estate brokers specializes in repositioning properties for today’s evolving demands. Whether it’s redevelopment, a fresh office leasing strategy, or a whole office building conversion, we help you determine the what, when, and how to transform your building’s future value. Reach out today to explore your options.