Converting vs. Demolition: Important Questions to Consider

By Gary Tasman

For the majority of residents in Southwest Florida, our lives have chiefly returned to our pre-pandemic normal. Offices, restaurants, retail stores, and tourist attractions are buzzing with activity—and in many cases, they’re busier than ever before. It would be a mistake, however, to think that just because things feel “normal” again that nothing has changed.

The ways that we both live and work have actually modified tremendously over the last two years, and our commercial property needs are following suit. Because of our rapidly growing population, some businesses have outgrown their capacity. Other workplaces have less need for space because of a shift to remote or semi-remote work. Delivery services and BOPIS (buy online, pick up in-store) models are changing space needs for retailers including grocery stores and restaurants.

As businesses try to adapt to this paradigm shift, many will need to renovate their space or rebuild it entirely to remain competitive. But which of those options should they choose? There are a number of questions to consider when debating converting versus demolition.

What’s Your Budget?

Perhaps the most important consideration when making a decision of this magnitude is budget. With all other things being equal, remodeling a space is typically going to be a more budget-friendly option than a demolition and rebuild. However, a number of variables we’ll discuss later in this article can challenge that notion.

When estimating your demolition or conversion budget, make sure you’re projecting carefully. Inflation, supply issues, and labor shortages have made the costs of goods and services difficult to predict for commercial builders. On a recent episode of our podcast, “What’s Developing in Southwest Florida,” Mark Stevens of Stevens Construction Inc. told us that building costs have recently increased by more than 20%.

If rebuilding is your preference, but current economic conditions make you wary, consider this: You have much better control of your budget during a remodel. If your cash flow slows due to a change in consumer behavior or a recession, you have the flexibility to pull the plug on some of your “want-to-haves” and focus your budget on your most imperative needs. While you would also have similar flexibility during a rebuilding process, demolition is a bell that can’t be unrung.

What’s the Building’s Age and Condition?

The full lifespan of a commercial building is considered to be 50-60 years, depending on the location, type of building, materials used, and other variables. According to a 2018 study by the U.S. Energy Information Association, 46% of the commercial buildings in the United States were built before 1980, meaning they’ve either outlasted their projected lifespan or are coming close to it.

Here in Southwest Florida, our commercial buildings are younger than the national average, but many are still creeping up on the end of their functional life. Our damp climate and sometimes harsh weather conditions can also negatively impact building conditions, causing foundation issues, roof damage and structural impairments, many of which can go unnoticed for years.

Older structures may need significant upgrades to comply with more recent regulations and building codes. Thirty years ago this month, Hurricane Andrew devastated South Florida and swiftly brought substantial changes to the state’s building code. The Americans with Disabilities Act, enacted in 1990, presents additional requirements that older buildings may not possess. Structures more than 30 years old will likely need substantial and costly upgrades to meet compliance during renovation, making conversion potentially as costly and time-consuming as a demo and complete rebuild.

On the other hand, some older buildings have “good bones,” or have been through multiple updates over their lifespans, making them more viable options for a remodel. As an example, older warehouses are adaptable for a number of uses because of their open space and large and accommodating foundations.

While the age of a building and its condition are two important factors to consider, there are other variables that can help make the decision between converting and demolition.

How Long Will You Need It?

Chances are, if you’re making the decision about whether to convert or demolish your commercial space, you’ve already begun to make projections about your future needs. While you don’t need to be Nostradamus and predict every possible contingency, you should have a reasonable expectation about how long you plan to stay in your location.

It stands to reason that if you only expect to be in the building for a short period, renovation is likely the smarter option. You may even be able to kick the can down the road on some age-related issues if you don’t expect to need the building for a decade or more.

However, if you expect your location to be more of a “forever home” for your business or your portfolio, demolition and a complete rebuild make for a stronger long-term investment. There are two reasons for this. First, you should be able to recoup the typically higher costs of the rebuild over time. More importantly, when you do eventually decide it’s time to sell, you’ll be marketing a much newer building with more modern amenities.

Is Sustainability a Concern?

Many businesses have adopted ESG (Environmental, Social, and Governance) initiatives to guide their strategy, develop policies and procedures, and reveal growth opportunities. Environmental, Social, and Governance are often referred to as corporate sustainability. In essence, “The less CO2 and waste a company produces and the more it cares about peoples’ wellbeing, the more interesting it is for employees, customers and investors,” explains Ariane Husemann, Cushman & Wakefield’s Head of Sustainability for the DACH region.

Because there are no uniform global standards for ESG or sustainability, it can be challenging to determine if a structure fits into a company’s ESG framework. Owners should look at the purpose of the building, the company’s goals, and the facility’s suitability for its employees, along with its potential environmental impact.

If sustainability is a concern, converting a facility may be the more ESG-friendly option. Existing buildings, says Lutz Schilbach, Cushman & Wakefield’s Design + Build Team Lead, have a great advantage.  “Even if it is dismantled to the shell, the concrete skeleton of the building is retained,” explains Schilbach. “The cement element of concrete is one of the major energy guzzlers…as a lot of CO2 is released during its production.”

However, demolition can still make sense from an ESG perspective. Structural factors like  construction quality, story heights, or load-bearing capacities may mean that the existing property has little potential for contemporary use. Additionally, if land values have risen significantly, the existing building may no longer be the best option for the location’s potential value. In this instance, demolition—and rebuilding on a different site—become an appealing option.

If the decision is made to demolish, sustainability can and should still be a consideration when planning the new building. “Local building materials reduce the CO2 footprint during transport and are created under fair working conditions,” adds Husemann. “In addition, one should rely on recyclable materials from the outset and think about their later disposal right from the start.”

Converting vs. Demolition: The Bottom Line

Budget is only one consideration to keep in mind when deciding whether to remodel or demolish and rebuild an existing facility. The building’s age, condition, and future use, as well as factors like sustainability, should all be considered.

Southwest Florida is full of buildings that have been converted into new uses. In Fort Myers alone, the Sidney & Berne Davis Art Center, the Collaboratory, the IMAG, and the Lee County School District headquarters are some of the most well-known examples. With building costs continuing to rise, we anticipate that the majority of property owners will continue opting to modernize existing structures when possible.

Are you a property owner debating between conversion and demolition? Whether you own an investment property or you’re an owner-occupier, our team of Commercial Property Experts can help you determine the best course of action for your facility. Contact us by calling 239-489-3600 or contact-us.

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