Why Some Industrial Users Choose Existing Buildings Over New Construction
When an industrial company needs more space, new construction has an obvious advantage: you can build exactly what you want.
New construction allows a company to design around its operation, but usually at a higher cost and with a longer timeline.
For many industrial users, the real question is whether the cost and time savings of an existing building are large enough to justify the compromises.
Start With the Real Cost
Earlier this year, RenewAire purchased the former Guardian Glass facility in Sun Prairie, a 179,500 SF manufacturing building our team was marketing for sale or lease.
The building had valuable manufacturing infrastructure, but still required adaptation for RenewAire.
Depending on the building and user, that work can include office buildout, HVAC, electrical service, loading, manufacturing areas, parking, exterior improvements and sprinkler systems. Those costs can vary dramatically from one property to another.
The useful comparison is acquisition plus renovation versus land, site improvements, design, approvals and ground-up construction.
Those costs are especially important in a market where industrial property values and replacement costs have risen significantly.
The greater the difference between those two numbers, the more compromises a user may reasonably accept in an existing facility.
Timing Can Change the Decision
Oakbrook recently represented USEMCO in its purchase of a 192,301 SF manufacturing facility in Tomah.
USEMCO needed additional capacity quickly to support a rapidly growing part of its business. Going through site selection, design, approvals and construction did not fit that timetable.
An existing facility allowed the company to add capacity sooner while also requiring less capital. For the user, that can directly affect how quickly it can take on new business.
Existing Buildings Can Still Require Major Work
Our team also represented the seller of an approximately 27,000 SF office/flex building in Verona that ANI Pharmaceuticals purchased for a new pharmaceutical manufacturing operation.
The existing facility provided a starting point, but ANI is making significant improvements to adapt it for its use, including manufacturing, laboratory and related support areas.
The right existing building can still be renovated for less money and in less time than building from scratch.
How We Help Buyers Evaluate the Options
One of the first steps in a buyer search is determining how many buildings could realistically work.
We maintain a database of more than 800 industrial buildings throughout the Madison market. That allows us to search beyond properties formally listed for sale and identify off-market buildings that fit a client’s size, location and physical requirements.
Sometimes that uncovers an off-market opportunity. Other times, it shows that only a handful of buildings market-wide could realistically work. That information can be just as useful.
If a company learns early that there are very few existing-building options, it can spend less time waiting for the perfect property to appear and evaluate renovation, new construction or other alternatives sooner.
Why Owners Should Care Too
Industrial owners often focus on square footage, age and comparable sale prices when evaluating property value. Users look at the building differently.
Power, loading, clear height, parking, office buildout, condition and expansion potential all affect what a buyer may need to spend after closing.
A functional building that saves the next user millions of dollars in construction costs or a year of development time can have an advantage over competing properties, even if it is older.
Conversely, deferred maintenance or expensive functional deficiencies can directly reduce what a user can afford to pay.
New construction will be the right answer when operational requirements are highly specialized, existing buildings require too many compromises, or there simply are not suitable options available.
With Madison’s persistently low industrial vacancy rate, growing companies often need to determine early whether an existing-building solution is realistic.
Understanding the full universe of potential properties helps a company decide sooner whether to pursue an existing facility or move toward new construction.
Key Takeaways
- Existing industrial buildings do not need to be perfect. The key question is whether the cost and timing advantages outweigh the compromises.
- Buyers should compare acquisition plus renovation costs against the full cost of land, design, approvals, site improvements and new construction.
- Timing can be as important as cost, especially when a manufacturer needs additional capacity quickly.
- Off-market research can help determine whether a realistic existing-building option actually exists.
- Building functionality can materially affect value because buyers factor future improvement costs into what they are willing to pay.
Frequently Asked Questions
Is buying an existing industrial building usually cheaper than building new?
Often, but not always. The comparison should include the purchase price plus renovation costs for an existing building versus land, design, approvals, site improvements and construction costs for a new facility. Specialized improvements can significantly change the economics.
What should an industrial buyer evaluate in an existing building?
Important considerations typically include clear height, loading, electrical service, HVAC, sprinkler systems, parking, office configuration, site circulation, zoning, outside storage and expansion potential. The relative importance of each depends on the user’s operation.
How long can new industrial construction take?
Timing varies based on site availability, design, municipal approvals, infrastructure and construction conditions. For companies with an immediate capacity need, an existing building can sometimes provide a substantially faster path to occupancy.
Can Oakbrook help identify industrial buildings that are not listed for sale?
Yes. Oakbrook maintains a database of more than 800 industrial buildings throughout the Madison market. We use it to identify potential off-market properties that match a buyer’s size, location and building requirements and can approach owners directly.
What if there are no suitable existing industrial buildings available?
That is useful information too. If the market contains very few properties that meet a company’s requirements, identifying that early can help the company shift its attention toward renovation, new construction or another strategy rather than waiting indefinitely for a building that may not become available.
Chris Caulum, SIOR
Vice President of Commercial Brokerage
Chris specializes in industrial and office real estate throughout Madison and South-Central Wisconsin, helping owners, investors, and businesses make informed commercial real estate decisions.
608-443-1040
ccaulum@oakbrookcorp.com
Meet Chris Caulum