Finding the right commercial property is only part of the real estate decision.

If the property must be renovated or converted before the business can operate, the cost, feasibility and timing of the build-out can be just as important as the purchase price or rent.

A commercial property renovation in Maryland can range from relatively simple cosmetic improvements to a substantial construction project involving architects, engineers, permits, electrical upgrades, plumbing, HVAC, fire protection, accessibility improvements and changes to the building’s use or occupancy.

What Is a Commercial Build-Out?

A commercial build-out is the construction or modification necessary to prepare a commercial space for a particular occupant or business use.

Depending on the property, a build-out may include:

• Interior demolition
• New walls and partitions
• Offices
• Conference rooms
• Restrooms
• Flooring
• Ceilings
• Lighting
• Electrical work
• Plumbing
• HVAC
• Fire protection
• Accessibility improvements
• Commercial kitchen installations
• Loading areas
• Exterior improvements
• Signage

Renovation vs. Build-Out vs. Tenant Improvements

Why Build-Out Matters Before Choosing a Property

Consider two properties.

This is why commercial properties should be compared using the total project cost, not merely the asking price.

Step 1: Define the Intended Business Use

Before estimating construction, clearly identify what the business intends to do in the property.

The planned use affects:

• Zoning
• Occupancy
• Parking
• Building layout
• Fire/life-safety requirements
• Electrical demand
• Plumbing
• Ventilation
• Accessibility
• Permits and approvals

Step 2: Determine Whether the Use Is Changing

A particularly important issue is whether the proposed business will use the building differently from its prior or approved occupancy.

Examples could include:

• Office converted to restaurant
• Warehouse converted to assembly space
• Retail converted to medical use
• Industrial building converted to recreational use
• Office converted to day care
• Warehouse converted to a religious assembly facility

A proposed change can affect the scope of code review and improvements required for the project.

Step 3: Conduct a Preliminary Property Assessment

Before developing detailed plans, evaluate the existing building.

Important components may include:

• Structure
• Roof
• HVAC
• Electrical service
• Plumbing
• Water and sewer capacity
• Fire sprinkler system
• Fire alarm system
• Restrooms
• Parking
• Entrances and exits
• Accessibility
• Loading areas
• Interior configuration

Step 4: Bring the Right Professionals Into the Process

Commercial renovations can require multiple specialists.

Depending on the project, the team may include:

• Commercial real estate broker
• Architect
• General contractor
• Civil engineer
• Structural engineer
• Mechanical engineer
• Electrical engineer
• Plumbing professionals
• Fire-protection professionals
• Surveyor
• Environmental consultant
• Attorney
• Insurance professional
• Lender

Not every project requires every professional, but complicated conversions should not be evaluated solely from a real estate listing or visual walk-through.

Step 5: Develop a Preliminary Space Plan

Before obtaining meaningful construction pricing, determine approximately how the space needs to function.

A preliminary plan might identify:

• Reception area
• Offices
• Conference rooms
• Restrooms
• Customer areas
• Assembly areas
• Storage
• Warehouse space
• Kitchen or break room
• Mechanical rooms
• Entrances and exits
• Loading areas

The goal is to determine whether the building can reasonably accommodate the business before investing heavily in detailed design.

Step 6: Obtain Preliminary Construction Estimates

Once the desired improvements are reasonably understood, obtain preliminary cost information from qualified construction professionals.

The estimate should consider more than cosmetic work.

How Much Does a Commercial Build-Out Cost in Maryland?

There is no reliable universal cost per square foot for every Maryland commercial renovation.

Actual costs depend on:

• Property condition
• Business use
• Building type
• Quality of finishes
• Mechanical requirements
• Electrical requirements
• Plumbing requirements
• Fire protection
• Accessibility work
• Structural changes
• Local permitting requirements
• Labor and material costs

Hard Costs vs. Soft Costs

Commercial buyers and tenants sometimes budget only for construction and forget the professional and administrative costs surrounding the project.

Don’t Forget Furniture, Fixtures and Equipment

Construction may not include everything required to open the business.

The project budget may also need to account for furniture, fixtures and equipment — often referred to as FF&E.

Depending on the business, this could include:

• Office furniture
• Commercial kitchen equipment
• Medical equipment
• Warehouse racking
• Security systems
• Technology
• Point-of-sale systems
• Specialized machinery

Step 7: Include a Construction Contingency

Renovation projects can reveal conditions that were not obvious during the initial inspection.

Potential surprises may involve:

• Hidden plumbing problems
• Electrical deficiencies
• Structural conditions
• Water intrusion
• Unexpected demolition
• Code-related improvements
• Material changes
• Design revisions

For this reason, the project budget should generally include an appropriate contingency rather than assuming the preliminary estimate will be the final cost.

Step 8: Understand Maryland Building Codes

Maryland’s building-code framework includes the Maryland Building Performance Standards.

Maryland jurisdictions enforce applicable building codes and may adopt local modifications within the limits established by state law.

Because requirements and local amendments can differ, project teams should verify current requirements with the jurisdiction where the property is located.

Step 9: Determine Which Permits Are Required

The permits required depend on the scope of work and local jurisdiction.

A commercial renovation may potentially involve:

• Building permit
• Electrical permit
• Plumbing permit
• Mechanical permit
• Fire-protection approvals
• Sign permit
• Grading or site permits
• Other project-specific approvals

Step 10: Submit Plans for Review

Projects requiring plans may need to go through plan review before permits can be issued.

Depending on the project, plans may address:

• Floor layout
• Structural work
• Electrical systems
• Mechanical systems
• Plumbing
• Fire protection
• Accessibility
• Site improvements

Incomplete plans or revisions can extend the project timeline, so permit and plan-review time should be incorporated into the real estate decision.

Step 11: Evaluate Fire and Life-Safety Requirements

Fire and life-safety requirements can become a significant component of a commercial conversion.

Potential considerations include:

• Sprinkler systems
• Fire alarms
• Emergency lighting
• Exit signage
• Number of exits
• Exit width
• Travel distance
• Occupancy load
• Fire-rated construction

Step 12: Evaluate Accessibility

Commercial renovation planning should include applicable accessibility requirements.

Potential considerations can include:

• Accessible parking
• Accessible routes
• Entrances
• Doorways
• Restrooms
• Interior circulation
• Elevators or vertical access where applicable

Maryland’s building-code framework includes the Maryland Accessibility Code, and local jurisdictions may make accessibility requirements more stringent, but not less stringent than the state standard.

Step 13: Investigate Electrical Requirements

Some businesses require substantially more electrical capacity than the building’s previous occupant.

Examples may include:

• Manufacturing
• Restaurants
• Medical facilities
• Commercial kitchens
• Data-intensive operations
• Specialized equipment

An electrical professional should evaluate whether existing service is sufficient and what upgrades may be required.

Step 14: Evaluate HVAC

HVAC requirements depend heavily on occupancy and use.

A warehouse previously used primarily for storage may have very different heating, cooling and ventilation requirements from an office, medical facility, restaurant or assembly use.

Potential considerations include:

• Existing equipment age
• Capacity
• Ductwork
• Ventilation
• Zoning
• Energy efficiency
• Special exhaust requirements

Step 15: Evaluate Plumbing and Restrooms

A change in occupancy or business operation may create additional plumbing requirements.

Questions can include:

• Are there enough restrooms?
• Is additional plumbing required?
• Does the use require sinks or specialized fixtures?
• Can existing water and sewer service support the operation?
• Will restrooms require accessibility modifications?

Step 16: Investigate Environmental Conditions Before Renovation

Renovation can disturb existing building materials or uncover conditions that were not apparent beforehand.

Depending on the age and history of the property, appropriate professionals may need to investigate environmental conditions before demolition or construction.

Step 17: Understand Tenant Improvement Allowances

In a commercial lease, the landlord may agree to contribute toward the tenant’s build-out.

This is commonly referred to as a tenant improvement allowance or TI allowance.

The lease or work letter should clearly address matters such as:

• Amount of the allowance
• Eligible expenses
• Who controls construction
• Approval of plans
• Contractor requirements
• Payment or reimbursement procedure
• Documentation required
• Completion deadlines
• Responsibility for cost overruns

Who Pays for Commercial Build-Out?

In a leased property, responsibility depends on the negotiated lease.

What Is a Commercial Lease Work Letter?

For more substantial tenant improvements, the lease may include or reference a work letter describing the construction responsibilities of the landlord and tenant.

A work letter may address:

• Scope of work
• Plans and specifications
• Construction standards
• Approvals
• Contractors
• TI allowance
• Change orders
• Cost overruns
• Completion timing
• Delivery condition

Build-Out and Free Rent

A commercial tenant may negotiate a period of rent abatement or free rent, particularly when significant work is required before the premises can be fully used.

The lease should clearly state when:

• The lease term begins
• Possession is delivered
• Construction can begin
• Rent commences
• Operating expenses commence

Those dates are not necessarily the same.

Step 18: Build a Realistic Project Timeline

The construction period is only one part of the timeline.

Step 19: Understand Inspections During Construction

Permitted construction may require inspections at different stages.

Depending on the project, inspections may involve:

• Building work
• Electrical work
• Plumbing
• Mechanical systems
• Fire protection
• Other regulated work

Work should be coordinated with the applicable permitting authority and qualified construction professionals.

Step 20: Confirm Final Occupancy Requirements

Before opening the business, determine which final approvals are required by the applicable jurisdiction and for the particular use.

The terminology and process can vary by jurisdiction and project.

Do not assume that completion of physical construction by itself establishes that the space is approved for occupancy or operation.

Renovating an Owner-Occupied Commercial Property

A buyer purchasing a property for its own business should try to investigate renovation feasibility during the due-diligence period.

Where appropriate, that may include:

• Contractor walk-through
• Architect consultation
• Zoning investigation
• Preliminary space planning
• Utility investigation
• Inspection
• Environmental review
• Preliminary construction budget

Renovating a Leased Commercial Property

A tenant has additional considerations because it does not own the building.

The lease should be reviewed for:

• Landlord approval requirements
• Construction standards
• Contractor requirements
• Insurance
• TI allowance
• Permitted alterations
• Ownership of improvements
• Restoration obligations
• Signage
• Work hours
• Construction access

Should You Bring a Contractor Before Signing?

For properties requiring substantial improvements, bringing an appropriate contractor or construction professional into the process before making an irreversible commitment can be extremely valuable.

A preliminary walk-through may help identify:

• Major construction challenges
• Potential system upgrades
• Layout problems
• Possible cost drivers
• Questions requiring an architect or engineer

Build-Out Costs and Commercial Financing

A commercial buyer planning significant renovations should discuss the project with the lender early.

Depending on the loan structure, the lender may consider:

• Purchase price
• Renovation budget
• Appraisal
• Borrower equity
• Construction plans
• Contractor information
• Project timeline
• Contingency
• Post-renovation property value

Commercial Renovation Budget Checklist

Common Commercial Renovation Mistakes

• Signing before confirming the intended use.
• Assuming the existing building can easily be converted.
• Budgeting only for cosmetic work.
• Ignoring electrical, HVAC and plumbing capacity.
• Forgetting fire-protection requirements.
• Ignoring accessibility considerations.
• Failing to budget professional fees.
• Failing to include a contingency.
• Relying on generic cost-per-square-foot estimates.
• Failing to investigate permit requirements.
• Underestimating plan-review time.
• Assuming construction completion automatically means the business can open.
• Failing to negotiate tenant improvements in the lease.
• Ignoring carrying costs during construction.

Commercial Renovation FAQs

This article is provided for general informational and educational purposes only and does not constitute legal, architectural, engineering, construction, zoning, building-code, financial, tax or investment advice. Permit, building, fire, accessibility, occupancy and construction requirements vary based on the property, scope of work and Maryland jurisdiction. Buyers, property owners and tenants should verify requirements with the applicable government agencies and qualified attorneys, architects, engineers, contractors and other professionals before beginning a project or making a real estate decision.