How to Find Value in Underperforming Commercial Properties

31 May 2025

Investing in commercial real estate can be lucrative, but what about those properties that seem to be struggling? Many investors overlook underperforming commercial properties, assuming they’re money pits. However, with the right strategy, these properties can turn into goldmines.

If you’ve ever come across a commercial building that looks neglected or isn’t attracting tenants, don’t write it off just yet. Sometimes, a little creativity and smart decision-making can unlock hidden value. Let’s dive into how you can find and maximize the potential of underperforming commercial properties.

Why Do Some Commercial Properties Underperform?

Before we jump into solutions, it’s crucial to understand why a property isn’t meeting expectations. Common causes include:

- Poor Location Perception – The actual location might not be bad, but if people think it is, leasing could be a challenge.
- Outdated Facilities – A building with old infrastructure or poor aesthetics can struggle to attract tenants.
- High Vacancy Rates – If too many units sit empty, cash flow is impacted, and the property appears undesirable.
- Inefficient Management – Sometimes, the issue isn’t the building but the people running it.
- Mispriced Lease Rates – If rental rates are too high or too low compared to market demand, occupancy could suffer.
- Shifting Market Trends – Changes in consumer behavior, work-from-home trends, or new developments in the area can affect a property's performance.

The good news? Most of these problems are fixable with the right approach.

How to Identify Underperforming Properties with Potential

A building may be struggling, but that doesn’t mean it’s a lost cause. Here’s how to spot a hidden gem:

1. Research the Market and Compare Data

Start by studying local commercial real estate trends. Look at comparable properties in the area—what are they doing differently? Are they charging higher rent? Do they have better amenities? Understanding these factors can help you pinpoint what’s wrong and what can be improved.

2. Analyze Occupancy and Tenant Mix

A healthy commercial property has a balanced mix of tenants. If a retail center, office space, or industrial property has high turnover or too many vacancies, find out why. Is it poor marketing? Are the leases inflexible? Is the property lacking key amenities? Identifying the weak points will help you create a solid turnaround plan.

3. Inspect the Property Thoroughly

Sometimes, a fresh coat of paint and minor renovations can drastically improve a property’s appeal. Take a close look at the building structure, parking, landscaping, and common spaces. Small upgrades can make a world of difference in attracting quality tenants.

4. Evaluate the Property’s Financials

A property’s books can tell you a lot. Examine the income and expenses—are costs too high? Are rents not keeping up with the market? Some expenses, like inefficient energy usage, can be optimized to improve the bottom line.

Strategies to Unlock the Hidden Value

Once you’ve identified an underperforming property with potential, the next step is knowing how to turn it around.

1. Improve Curb Appeal & Upgrades

First impressions matter. Simple changes like modern signage, exterior paint, better landscaping, and improved lighting can make a property more inviting.

For office or retail spaces, upgrading common areas, restrooms, or adding modern amenities (like high-speed internet or co-working spaces) can attract the right tenants.

2. Adjust Lease Structures & Incentives

If a property isn’t attracting tenants, consider adjusting lease terms. Offering flexible leases, rent-free periods, or incentives like tenant improvement allowances can make your property more competitive.

Think about this – would you rather have an empty space bringing in zero income or a slightly discounted lease that ensures steady cash flow?

3. Optimize Property Management

If the property is poorly managed, a new management team with experience in maximizing occupancy and maintaining tenant satisfaction can make a difference. Sometimes, something as simple as better marketing or tenant relations can boost occupancy.

4. Repurpose or Redevelop the Space

Could the building serve a different purpose? An outdated office building might work better as a mixed-use development or coworking space. A struggling retail center might thrive with a more entertainment-focused tenant mix.

Think outside the box. A shift towards what’s in demand could be the key to turning an underperforming asset into a high-value investment.

5. Reduce Operating Costs

Energy-efficient lighting, updated HVAC systems, and lower maintenance costs can significantly boost net operating income (NOI). Look at ways to reduce expenses without sacrificing the property’s appeal.

Negotiating better contracts with service providers and improving energy efficiency can add long-term value.

Success Stories: Real-Life Turnarounds

Case Study #1: The Revitalized Office Space

An investor purchased an aging office building in a prime location but struggled with 40% vacancy. By updating the lobby, improving Wi-Fi infrastructure, and offering shared office spaces, occupancy jumped to 95% within two years.

Case Study #2: The Retail Center Comeback

A dated shopping center was struggling as foot traffic declined. The new owner introduced a mix of food, entertainment, and healthcare tenants, turning it into a lifestyle hub. The result? Increased rental demand and a higher-value asset.

Case Study #3: From Warehouse to Mixed-Use Property

An underutilized industrial warehouse was converted into a trendy combination of loft apartments and retail spaces. The transformation created a high-demand property with increased cash flow.

All of these properties had potential—someone just had to see it.

Final Thoughts: Seeing Opportunity Where Others See Problems

Turning around an underperforming commercial property isn’t an overnight process, but it’s often well worth the effort. The key is recognizing potential, implementing strategic changes, and being patient.

Instead of avoiding struggling properties, embrace them as opportunities. A little vision, creativity, and effort can turn a so-called “underperforming” asset into a profitable investment.

So, next time you see a commercial property that’s struggling, don’t write it off too soon. It could be the diamond in the rough you’ve been looking for.