In today’s commercial real estate landscape, investors are grappling with unprecedented construction costs that continue to climb. JLL’s 2025 U.S. Construction Outlook finds cost growth will be between 5% and 7% in 2025,¹ creating significant pressure on development budgets and investor returns. As developers and property owners face mounting challenges in cash flow and funding, a strategic alternative has emerged that savvy investors can no longer afford to ignore: commercial building restoration.
The New Construction Cost Reality
The financial landscape for new commercial construction has shifted dramatically. Commercial construction costs $240 to $870 per square foot on average, depending on the location and building type, according to recent industry data.² For premium markets, these numbers climb even higher, with prices in areas like New York going up to $450 per square foot.
To put this in perspective, a modest 20,000 square foot office building in a mid-tier market can easily cost $5-10 million in construction alone, before factoring in land acquisition, permits, and financing costs. In major metropolitan areas, the same building could command $12-18 million or more. According to Building’s Guide, construction costs vary dramatically by method: even the most economical pre-engineered metal buildings range from $75 to $295 per square foot, while structural steel framing reaches $105 to $330 per square foot, and tilt-up construction can cost $140 to $375 per square foot.³ These figures represent a substantial capital commitment that demands careful consideration of alternatives.
The cost variance by building type adds another layer of complexity. According to Fixr’s construction cost data, five-star hotels range from $332 to $550 per square foot,⁴ reflecting the need for high-end finishes, extensive amenities, and sophisticated design elements. Meanwhile, basic warehouse construction starts at lower per-square-foot costs but still requires significant capital outlay for meaningful square footage.
The Hidden Advantages of Restoration
While new construction costs continue their upward trajectory, existing commercial buildings represent untapped value propositions. These structures often feature superior craftsmanship, premium materials, and established locations that would be prohibitively expensive to replicate today. Many buildings constructed in earlier decades used construction techniques and materials that modern buildings simply cannot match at comparable price points.
The financial benefits extend beyond initial cost savings. Restoration projects typically encounter fewer regulatory hurdles, reduced permitting delays, and more predictable timelines compared to ground-up construction. This translates to faster project completion, earlier revenue generation, and reduced carrying costs for investors.
Location advantages cannot be overstated. Many buildings suitable for restoration occupy prime real estate in established commercial districts, areas where new construction opportunities are limited or prohibitively expensive. These locations often provide immediate access to mature customer bases, established transportation networks, and proven market demand.
Environmental and Community Value
Today’s investment climate increasingly values environmental stewardship and community impact. Building restoration addresses both priorities while generating solid returns. The environmental benefits include reduced material waste, lower carbon footprint compared to demolition and new construction, and preservation of embodied energy already invested in existing structures.
From a community perspective, restoration projects contribute to neighborhood revitalization while preserving architectural heritage. This community goodwill often translates to favorable treatment from local authorities, potential tax incentives, and positive public relations that enhance property values over time.
Strategic Considerations for Investors
Successful commercial building restoration requires a different approach than traditional development. Investors must evaluate structural integrity, systems upgrades, and architectural potential while understanding the specialized expertise required for quality restoration work. The key lies in assembling teams with specific restoration experience, including engineers, architects, and craftspeople who understand historical construction methods and materials.
Due diligence becomes paramount. Comprehensive building assessments, environmental reviews, and structural evaluations help identify potential issues before they impact project budgets. However, for investors willing to navigate these considerations, restoration projects often deliver superior risk-adjusted returns compared to new construction.
Market Positioning and Future Value
Commercial building restoration positions investors to capitalize on growing demand for unique, character-rich properties. Modern tenants increasingly seek distinctive spaces that stand apart from generic new construction. Restored buildings offer this differentiation while often commanding premium rents due to their unique architectural features and prime locations.
The long-term value proposition remains strong. Well-executed restoration projects create assets that appreciate steadily while generating consistent cash flows. Unlike new construction, which faces immediate depreciation, thoughtfully restored buildings often gain value as their historical significance and architectural character become more rare and valued in the marketplace.
As construction costs continue rising and development opportunities become scarcer in prime locations, commercial building restoration emerges as a compelling strategy for investors seeking to build wealth while contributing positively to their communities. The combination of favorable economics, reduced risk, and positive community impact makes restoration an investment strategy worthy of serious consideration in today’s challenging commercial real estate environment.
Sources
- JLL. “U.S. construction industry builds momentum for 2025.” March 3, 2025. https://www.jll.com/en-us/newsroom/us-construction-industry-builds-momentum-for-2025
- HomeGuide. “Commercial Construction Cost Per Square Foot.” https://homeguide.com/costs/commercial-construction-cost-per-square-foot
- Building’s Guide. “Cost to Build Commercial Building.” https://www.buildingsguide.com/costs/cost-to-build-commercial-building/
- Fixr. “Cost to Build a Hotel.” https://www.fixr.com/costs/build-hotel