Demolition Costs in Commercial Real Estate
Right now, commercial demolition costs between $4 to $8 per sq. ft., with the average per building demolition cost in the U.S. currently sitting at $30,500. However, it’s also important to note that for especially large buildings, demolition costs per square foot may fall slightly.
Better Financing Starts with More Options$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get QuotesWhat Does It Cost to Demolish a Commercial Building?
If you’re interested in demolishing a commercial building in order to make way for new development, it’s essential to understand the costs of commercial demolition. Right now, commercial demolition costs between $4 to $8 per sq. ft., with the average per building demolition cost in the U.S. currently sitting at $30,500. This makes perfect sense, as the median size of commercial buildings in the U.S. is about 5,000 sq. ft. (5,000 *6 = 30,000). However, it’s also important to note that for especially large buildings, demolition costs per square foot may fall slightly.
Financing the Commercial Demolition Process
In most cases, developers will take out a commercial construction loan in order to fund the development process for commercial property. Construction loans generally have terms of 1-3 years, are interest-only (I/O), and require a borrower to already have a takeout commitment from a permanent lender that will allow them to refinance and repay the principal of their loan when their term is up. Since commercial demolition is a core part of the development process, it will often be funded directly from construction loan proceeds, but not always.
The Importance of Preparation in the Commercial Demolition Process
Overall, commercial demolition isn’t necessarily an extremely expensive or time consuming process-- as long as you prepare carefully and make sure to shop around for the highest quality services for the lowest cost. In addition, preparing in advance will help you make sure you understand the costs of a demolition project and can factor these into your overall development expenses. Otherwise, unexpected costs, such as sky-high permit fees or excessive hauling expenses could begin to derail your development budget.
Steps in the Commercial Demolition Process:
Measuring the Building: For developers or investors who are set on demolishing a commercial building, the first step is to measure the building. Buildings can typically be measured traditionally, with a tape measure, however, for large projects, one may want to hire a surveyor to ensure that they can accurately plan and account for demolition costs. In addition, prior to demolition, a building needs to be professionally inspected for asbestos and other potentially toxic environmental contaminants.
Asbestos/Radon Inspection and Removal: If asbestos are discovered, a developer must call a specialized asbestos removal contractor, who will need to remove the material in compliance with EPA guidelines. Removal generally costs about $3/sq. ft., though this can vary significantly based on a variety of factors. In some areas, developers may also need to test for high levels of radon prior to demolition. If dangerous levels are found, certain safety measures must be put into place.
Selecting a Demolition Contractor: Just like any costly construction-related service, owners/developers should generally solicit bids from several contractors in order to see which companies offer the highest levels of service at the lowest price. Developers should also make sure that any bid is broken down by specific costs (i.e. labor, equipment, etc.) so that they do not overpay. In addition, demolition services often need to be licensed by a state, county, or city authority, and (like general contractors) should also be bonded and insured. Owner/developers should be careful to determine whether a demolition service includes permit and site cleanup costs.
Obtaining Demolition Permits: Perhaps most importantly, an owner or developer will need to obtain the proper permits before attempting the demolition of a commercial property. While this expensive is often covered by a demolition contractor, this is not always the case. Typically, demolition permits cost no more than a few hundred dollars, but in some places they can be quite expensive. In fact, in certain areas that attempt to discourage demolition in favor of property rehabilitation, permit fees can rise as high as $10,000.
Site Cleanup: Site cleanup is an essential part of the demolition process, since, if a site remains covered in debris, a developer will not be able to begin their new project. As previously mentioned, some demolition firms cover this in their overall demolition fee, while others may charge additional costs, or may not offer site cleanup services at all. If the demolition company does not include this in their general fee, developers should make sure to budget for these additional costs, which generally consist of:
Hauling costs: These costs will be quite a bit higher for projects that are located further from a landfill, but can often cost over $1,000, with costs rising for larger jobs.
Landfill costs: On average, landfill waste disposal costs approximately $50/ton, however, this varies based on location-- and certain types of materials generally cost more to dispose of than others.
Dumpster rental: Depending on the exact arrangement you have with your hauling company, you may also need to rent a dumpster separately from them. These costs can also vary greatly from company to company, with dumpsters costing anywhere from $250 to $1000 to rent for 3-4 days. Larger jobs, of course, will require multiple dumpsters.
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Related Questions
What are the typical demolition costs associated with commercial real estate?
The typical cost of commercial demolition is between $4 to $8 per sq. ft., with the average per building demolition cost in the U.S. currently sitting at $30,500. This makes perfect sense, as the median size of commercial buildings in the U.S. is about 5,000 sq. ft. (5,000 * 6 = 30,000). However, it’s also important to note that for especially large buildings, demolition costs per square foot may fall slightly.
In addition, prior to demolition, a building needs to be professionally inspected for asbestos and other potentially toxic environmental contaminants. If asbestos are discovered, a developer must call a specialized asbestos removal contractor, who will need to remove the material in compliance with EPA guidelines. Removal generally costs about $3/sq. ft., though this can vary significantly based on a variety of factors.
In some areas, developers may also need to test for high levels of radon prior to demolition. If dangerous levels are found, certain safety measures must be put into place.
In addition, demolition services often need to be licensed by a state, county, or city authority, and (like general contractors) should also be bonded and insured. Owner/developers should be careful to determine whether a demolition service includes permit and site cleanup costs.
Perhaps most importantly, an owner or developer will need to obtain the proper permits before attempting the demolition of a commercial property. While this expensive is often covered by a demolition contractor, this is not always the case. Typically, demolition permits cost no more than a few hundred dollars, but in some places they can be quite expensive. In fact, in certain areas that attempt to discourage demolition in favor of property rehabilitation, permit fees can rise as high as $10,000.
Site cleanup is an essential part of the demolition process, since, if a site remains covered in debris, a developer will not be able to begin their new project. As previously mentioned, demolition services often need to include permit and site cleanup costs.
What factors influence the cost of demolishing a commercial property?
The cost of demolishing a commercial property is influenced by a variety of factors, including the size of the building, the need for asbestos or radon inspection and removal, the cost of selecting a demolition contractor, the cost of obtaining demolition permits, and the cost of site cleanup.
The size of the building is important because it will determine the amount of labor and equipment needed for the demolition. Asbestos and radon inspection and removal are important because they must be done in accordance with EPA guidelines. The cost of selecting a demolition contractor will depend on the quality of services and the lowest cost. Obtaining demolition permits can be expensive, especially in areas that attempt to discourage demolition in favor of property rehabilitation. Finally, site cleanup is essential to ensure that the site is ready for the next development project.
What are the most common methods of demolishing a commercial building?
The most common methods of demolishing a commercial building are implosion, mechanical demolition, and deconstruction. Implosion is the most dramatic and involves using explosives to bring down the building. Mechanical demolition involves using heavy machinery such as bulldozers, excavators, and cranes to tear down the building. Deconstruction is the most labor-intensive and involves carefully dismantling the building piece by piece.
Are there any tax incentives for demolishing a commercial property?
No, there are no tax incentives for demolishing a commercial property. However, when an investor sells a property for more than the property's adjusted cost basis (original cost of the property minus any depreciation deductions taken), depreciation recapture is triggered. This means the investor would need to pay their regular income tax rate on the property sale proceeds instead of the capital gains tax rate, which is much less.
In most cases, developers will take out a commercial construction loan in order to fund the development process for commercial property. Construction loans generally have terms of 1-3 years, are interest-only (I/O), and require a borrower to already have a takeout commitment from a permanent lender that will allow them to refinance and repay the principal of their loan when their term is up. Since commercial demolition is a core part of the development process, it will often be funded directly from construction loan proceeds, but not always.
What safety measures should be taken when demolishing a commercial building?
When demolishing a commercial building, it is important to take certain safety measures. First, the building should be professionally inspected for asbestos and other potentially toxic environmental contaminants. If asbestos is discovered, a specialized asbestos removal contractor should be called to remove the material in compliance with EPA guidelines. In some areas, developers may also need to test for high levels of radon prior to demolition. If dangerous levels are found, certain safety measures must be put into place. Additionally, demolition services should be licensed by a state, county, or city authority, and should also be bonded and insured.