Not sure it should cost essence to upgrade a building. If you have several major passes into your territory, and have a watch tower at all of them it can easily become prohibitively expensive magically to upgrade them. Perhaps have it naturally attract some poulation on its own, like a town but unable to build any civilian buildings(housing, inns, crystal shrines, farms, etc.) without a certain tech (frontline villages or something).
for example:
Level 1: Watchtower
- Costs 3 essence + materials.
- It's expanding the size of the controlled territory by 1 around the watchtower.
- It's eliminating 2x2 FoW area around the watchtower.
- It offers +1 DEF for the garrisoned units.
- Starts with p population.
- Provides 0 Construction space.
Level 2: Guard Tower [First upgrade]
- Costs 600 gold + materials + requires 3p population
- It's expanding the size of the controlled territory by 1 around the guard tower.
- It's eliminating 2x2 FoW area around the guard tower.
- It offers +2 DEF for the garrisoned units.
- Provides 0 Construction space.
Level 3: Outpost [Second upgrade]
- Costs 900 gold + materials + requires 7p population
- It's expanding the size of the controlled territory by 2 around the outpost.
- It's eliminating 3x3 FoW area around the outpost.
- It offers +3 DEF for the garrisoned units.
- Provides 1 Construction space.
Level 4: Fortress [Third upgrade]
- Costs 1200 gold + materials + 13p population
- It's expanding the size of the controlled territory by 2 around the fortress.
- It's eliminating 3x3 FoW area around the fortress.
- It offers +4 DEF for the garrisoned units.
- Provides 1 Construction space.
Level 5: Stronghold [Fourth upgrade]
- Costs 1500 gold + materials + 20p population
- It's expanding the size of the controlled territory by 3 around the stronghold.
- It's eliminating 4x4 FoW area around the stronghold.
- It offers +5 DEF for the garrisoned units.
- Provides 2 Construction space.
Something like this would allow for the potential to use an outpost or better as a training ground, while keeping magical costs down. Maybe add a bonus for being trained in a military town or something.