You may transform any of the old stations into its new type. ie: you can transform an old 'Custom Shipyard I' into a X7 Factory Station or you could transform a 'Custom Outpost' (like you have) into a Space Colony I.
You may upgrade any of the old stations into the type above its current type. ie: you can upgrade an old 'Custom Shipyard I' into a Shipyard II or you could upgrade a 'Custom Outpost' into Space Colony II OR into a type 1 of each of the classes (Shipyard, R&D, Recycling, Defence).
You may upgrade or transform, not both. You must have the datacard to do any of this though.