Commercial real estate investment is more than just buying a property and benefiting from the sale or rent. Both decisions require cost-benefit analysis, not to mention the several considerations within each option. Upscaling a commercial real estate property is a sub-option within property sales and has vast potential.

Upscaling or remodeling a building refers to property renovations that transform it, giving it a fresh and new look. It requires extensive planning and carries a significant expense but can be beneficial in the long run.

Pros and Cons of Upscaling Your Commercial Real Estate Property

The best way to determine if upscaling a commercial real estate property is the right decision lies in knowing the pros and cons. In the following list, the first four are the advantages of remodeling your property, while the remaining three and the disadvantages.

1. Boosts Overall Appearance

Remodeling efforts add new life to the property, improving its overall appearance from inside and out. Appearance is critical when attracting potential tenants or buyers, enhancing overall earnings.

2. Subsidies and Tax Benefits

In some cases, you can receive attractive tax benefits and financial support from the state or federal government for restoring the property. It typically happens for older buildings considered historical but on the verge of collapsing.

Instead of taking on the renovation project, governments and similar institutions entrust the job to one or more investors, providing a portion of the costs to cover the task.

3. Advantages of a Premium Location

Sometimes, a dilapidated state is the only thing keeping a property’s value lower despite its prime location. Therefore, upscaling the property would make the overall value shoot through the roof, a much better outcome.

4. Better Pricing

Eventually, all decisions return to the primary question of value generation. Depending on the situation, a remodeled property will significantly increase its overall price, fetching a comfortable profit through the deal.

The abovementioned aspects are the benefits of upscaling a commercial real estate property, and the drawbacks are stated below.

5. Remodeling Expenses

The average commercial renovation can cost around $30 – $500 per square foot, depending on the design and quality of materials. Hence, it is an expensive decision, but it can significantly increase the profit margin through this effort.

6. Structural Limitations

While upscaling is a beneficial decision, it has some limitations. You’ll be using the existing structure, so you cannot change everything to your liking. Some original elements will remain unless you demolish the building and start from scratch.

7. Need for Direct Involvement

Lastly, you may assign an agent to handle the on-ground needs; however, you cannot remain uninvolved. You’ll need to give approvals, highlight preferences, and mention possible changes where you see fit.

Hence, you cannot give the order and money without taking a more active role in the renovation.

Wrapping Up

The pros of upscaling a commercial real estate property include the higher selling price, tax benefits, and better appearance. The cons are the expense, effort, and structural limitations. The final decision will require weighing your specific commercial real estate and choosing the better option.

CHRE team has extensive experience in this field and can provide expert guidance. Don’t hesitate to contact us to set up a meeting and discuss your options in detail.