Adaptive Reuse vs. New Construction in Commercial Real Estate! | Worth CRE

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Adaptive Reuse vs. New Construction in Commercial Real Estate!

 

One common question commercial realtors are often asked by those looking for the best investments is: "Which is better, new construction or adaptive reuse?" Both of these have advantages and disadvantages, depending on the area and the demand for space; each of them can work out well for real estate investors. Still, developers and investors also find sound financial reasons why investing in adaptive reuse can be more beneficial. Today, many real estate brokerage services are seeing a large demand to reuse existing buildings - and with good reason.

Preferred Locations and Improving Neighborhoods

There are currently numerous commercial markets where unused, older buildings are making a real comeback through adaptive reuse. Not only do many of these buildings exist either in or close to preferred commercial areas, some older buildings are treasured for their historic value, unique architecture, and their existence in very desirable locations. Skillfully executed adaptations of these older buildings can make them useful again in many ways, with some businesses even preferring to lease these types of buildings. Commercial realtors advise that as more buildings are being renovated and put back into active use, this is having a very positive effect on depressed neighborhoods in urban areas, helping to increase the value and desirability of all local commercial real estate.

Lack of Building Locations

Real estate brokerage services suggest that one other reason why adaptive reuse of older buildings can be much more lucrative for investment purposes is the lack of available places to build in some markets. Developers seeking land on which to build commercial investments now have to look further and further away from main commercial areas. Due to this lack of building space, land that is available must be purchased at a premium price, increasing the chance that commercial projects will not be as profitable as they could be. The further from more desired areas that a building project is constructed, the greater the chance of losing certain rental markets seeking space in downtown and urban areas.

The Cost of Renovation Over New Construction

Even though renovating older structures can be rather expensive, there are two main reasons why doing so can still be a better option than building new. First, the buildings in need of expensive upgrading and redesign can usually be bought cheaply in comparison to other commercial properties for sale in the same area. Once an inexpensive property in a desirable area has been renovated, the property then regains its value and can begin to produce income again. Second, while new construction may at times be less expensive than renovating an older building, once the price of the land is added, this may not always be the case. As mentioned above, commercial land to build on is scarce in some areas, drastically inflating the price of available lots.

Although every circumstance and building or commercial building project is different, there are many ways in which adaptive reuse is becoming a more efficient investment in commercial markets. Commercial realtors and real estate brokerage services are seeing a greater interest in adaptive reuse as a result. This approach to commercial real estate offers investors much of what is important in a commercial investment property.  Those advantages include a good location, high rental demand after renovation, and investment opportunities that will appreciate after renovation!

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