Building Up or Out: Which Is Cheaper?

To build up or out. That is the question many business owners and commercial developers have in mind for new construction and renovation projects. In real estate square footage is king: the more you have, the more valuable the real estate. But construction can be expensive, so being able to maximize every construction dollar is key.

Building up is often the more cost-effective option because you are adding square footage without having to acquire additional land. Building out requires more land, which increases acquisition costs.  Also, the electrical and plumbing cost more too.  And in some cases, like in building expansions, additional land may not be available.

The Height Advantage

One of the most significant advantages of building up is that you can build a large building on a small lot.  The cost of the construction only goes up        incrementally for each additional floor. The more stories you have, the lower the price per floor.

For example, let’s say it costs $28 million to construct a 140,000 square-foot, 9-story hotel. The average cost per floor is $3,111. If the owner decides they want a 10-story hotel instead, the average price per floor comes down to $2,950. Plus, the hotel will have additional revenue with more rooms. That’s the cost advantage of building up.

Covered Parking Decks

In some areas where prime real estate is in short supply like in downtown areas parking is a premium. Also, many employees and guests prefer covered parking over an outdoor lot. Constructing a multi-story building with covered parking decks is not only more convenient; it will increase the desirability of the building. You may even be able to create an additional revenue stream by charging guests a fee for parking in your building.

Building Expansion

When you have outgrown your existing space, the decision to build up or out is not just an economic one. The age of the existing structure is a determining factor. The building needs to be able to carry the additional weight load. An engineer will need to determine if the structure can be retrofitted to support additional floors. Also, there may be zoning and height restrictions that may limit the additional height of an existing building. And even with new construction, some municipalities have height restrictions, especially if your building is near an airport or on a flight path.

Value Engineering

The best way to determine whether you should build up or out is to consult with a commercial contractor that has experience constructing both single and multi-story buildings. They will be able to help you determine the best solution for your construction budget. Look for a commercial contractor that applies value engineering principles. They have the expertise for developing a more cost-effective approach to commercial construction and will stretch your financial budget without impacting quality.