I get asked about this a lot. “Should I split my big unit into two smaller ones?” Or the opposite: “My tenant wants to knock out the wall and combine two units.” Both can work. Both can also backfire.
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Current Unit Size: Are your units 2,000 SF, 5,000 SF, 10,000 SF, or larger? -
Rental Rate by Size: What do comparable small units (2-5K) rent for per SF vs. large units (10K+)? -
Dividing Cost: If you’re considering splitting, what’s the cost of new walls, utilities, entrances, and reconfig? -
Combining Upside: If combining, would total rent increase (one large tenant at higher rent) exceed the loss from reducing unit count?
When splitting makes sense
If you have a 6,000 SF unit that’s been sitting vacant for months and the demand in your market is for 2,000-3,000 SF spaces, splitting can be a great move. Smaller units lease faster, rent for more per foot, and diversify your tenant base.
The Math of Unit Division
A 10,000 SF unit renting at 10 dollars per SF = 100,000 per year. Divided into two 5,000 SF units renting at 12 dollars per SF each = 120,000 per year. That’s a 20 percent rent increase, but division cost you 30,000 in capex (walls, utilities, separate entries). ROI is one and a half years. If you hold the building longer than a year and a half, division wins. But if you’re selling in six months, the capex hurts more than the rent increase helps. Do the timeline math before you commit to division or combination.
The cost to split usually runs $15K-25K per unit. You need a demising wall, possibly a separate entrance, a new electrical panel, and maybe a small bathroom addition. On a flex building the construction is relatively simple because you’re working with concrete block or tilt-wall and the infrastructure is accessible.
I’ve seen owners in Charlotte split a single 8,000 SF unit into four 2,000 SF bays and increase the total rent by 40%. The demand for small bays from contractors is that strong. Each unit rents for $10-11 NNN versus the $7 NNN the big unit was getting.
When combining makes sense
Less common but it happens. A strong tenant wants more space and they’re willing to sign a longer lease for it. If combining two 2,000 SF units into one 4,000 SF space keeps a great tenant for five more years, it can be worth it. The rent per foot will be slightly lower but you eliminate turnover risk and vacancy.
The resale consideration
Here’s what most owners don’t think about: how does this affect the sale price? Buyers want maximum flexibility. A building with more, smaller units is generally worth more than one with fewer, larger units. So if you’re planning to sell in the next few years, splitting adds value. Combining might actually reduce it.
I always tell sellers: if you’re going to sell to me, don’t spend money splitting units first. I’ll do it myself after I buy. But if you’re going to hold for a while, splitting can boost your annual income significantly in a market like Spartanburg or the Charlotte suburbs.
Seller takeaway
Splitting or combining units is a major decision that impacts value materially. If you’re considering reconfiguring your flex space, call Roth Capital at 704-600-3839. We’ll run the numbers on whether splitting or combining makes sense for your property.
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