Whether you’re starting a new business or expanding an established company, you need a building! But the question is, should you try buying a pre-existing commercial property and make it your own, or should you do a custom commercial property buildout to fit your needs? Like any major decision, there’s no one-size-fits-all solution. The answer depends on your business, your location and the time/money you can allocate.
Here are some factors to consider when choosing the course of your next commercial construction project.
How Much Does Construction of a Commercial Real Estate Project Actually Cost?
Buying an existing building costs more than the purchase price. You also need to come up with a down payment and pay for the lender’s appraisal and closing fees. Additionally, it’s rare for a building to be a perfect fit for your business, which adds build-out costs. It isn’t unusual to spend $50-$200 per square foot to prepare an existing building for a new tenant.
Constructing a new building, by comparison, requires the purchase of land, plus payments to architecture firms and contractors. If the land hasn’t been developed, you may need to pay to connect to utilities and meet zoning requirements, adding features like fire hydrants and drainage areas.
You also need to consider soft costs for an entirely new building. It will take time to open your completed building, and construction delays could adversely affect your business. If you’re considering an expansion, you also have to factor in the build-out’s effect on your existing facility, including parking problems and noise. (These outside costs can easily account for 10% of your total budget.)
Buying a building has less risk in the short term, but constructing a building gives you more control, which may be better for your business in the long term. This makes cost analysis crucial to making the right decision as a business owner.
How Soon Do You Need Your Commercial Building?
If you buy a building, most of the work is already done. It’s just a matter of handling build-out, zoning changes and moving into the new location. Find a building that’s already zoned and built to fit your business, and you may be ready for occupancy within weeks of purchase.
The construction phase for a new commercial building takes anywhere from 2-6 months, depending on the scale. However, there are a team of other factors at play, including the design phase, zoning approval and delays due to weather and supply issues. Unless your business has specific requirements that are hard to meet with existing construction, buying a building is almost always the fastest option. Give strong consideration to these upfront costs, especially if you own a small business.
How Much Design Freedom Do You Need?
When you buy a building, you’re stuck with the conditions on that land. However, when you choose construction, you can put your new building where it makes the most sense. This gives you more flexibility when it comes to choosing zoning, access, space and building restrictions. If you plan on expanding in the future, you can buy extra land so you have space to add onto your facility as you grow.
Are There Buildings Available that Fit Your Business?
A small office building or warehouse space isn’t hard to find, but you probably aren’t going to find a factory building that’s ready to use. Building out the existing space can quickly eat into any savings you may get from buying a property.
However, there are times that these buildings can have features that would cost a fortune to replicate. Old gas stations can be fairly inexpensive, yet they’re in ideal locations for opening small retail spaces. Need a drive-thru? A former bank or pharmacy could have one built in. Do your due diligence, and be acutely aware of what your own business needs when you’re looking to buy a new commercial space.
Can You Recoup Costs Through Sub-Leasing?
Your construction project doesn’t have to be just for your business. When adding in the option for leasing commercial space out within your building, you can bring in rental income, and that extra cash flow can help pay the bills, mortgage payments, and better utilize the land.
Leasing space to other businesses also helps to make it easier for your business to expand. You can build extra space up front and lease it out, then take over those spaces as needed. If you don’t end up needing those spaces, you can still bring in extra income. Adding retail and office spaces also brings in additional businesses by increasing foot traffic to your own commercial property. If you’re working on an industrial building, there’s always a demand for warehouse space.
Do You Get a Tax Break or Other Tax Benefits from Building or Renovating?
Building in a certain way can get you access to tax breaks, grants and loans to help you pay for your construction project. Some of these are obvious: if you build in an area with high unemployment, you may get tax breaks for bringing in new jobs. However, there are ways you can take advantage of programs with both remodeling and new construction.
There are several federal, state and local programs that offer grants and low interest loans for restoring historic buildings. Communities want these buildings to be preserved, because they’re historically important, they give the area something unique to attract tourists, and property values can stay high when historic buildings don’t fall into dilapidation. This uniqueness is also great for attracting customers to boutiques and restaurants, but remember to consider how maintenance costs of a historic building can affect your bottom line.
You can also save on construction by implementing green building practices. Under 179D Commercial Buildings Energy-Efficiency Tax Deduction, the Department of Energy offers up to $1.80 per square foot to be deducted for buildings that meet requirements laid out in ASHRAE Standard 90.1. While this applies to both remodeled buildings and new construction, it’s much easier to meet these efficiency goals by starting from scratch. This increased efficiency also pays out during the life of the building through reduced utility costs. By leveraging similar state and local programs, the price difference between buying and building may be smaller than you think.
Get the Right Solution You Need for Your Commercial Building
If you want quality, cost-effective commercial construction, visit The Builders Association. We represent over 150 reputable construction firms of all types and sizes across eastern Ohio and western Pennsylvania, and we make it easy to find reputable union contractors with the skills and experience you need, from contractors to specialists.
Having trouble getting started? Download our directory and buyer’s guide. It has a complete list of our members, including architects, engineers, contractors and more.