For anyone working within the commercial construction industry, figuring out the costs per square foot may appear somewhat elusive at first glance, even after conducting preliminary research. While there are no easy answers, compiling accurate data for the project – including its location, the type of building you’re looking to build, and the local economy – all are vital factors to take into consideration when estimating commercial construction costs.
Keeping this information in mind, it is essential to understand the cost drivers for any commercial project – and how building type, construction type, and location can all be huge variables that will drive your cost per square foot. These are always a part of the initial programming discussions, and the architect will play a crucial role in determining projected expenditures. In this article, we’ll explore the different types of commercial construction costs based on the type of building, location, and other variables that affect a project’s bottom line.
Identifying Costs Based On Type Of Building & Materials
First and foremost, it should be noted that not all types of construction cost the same per square foot, and even more importantly, the cost of construction per square foot varies substantially with location throughout the United States. For example, in the instance of a single-story office building, location alone can represent as much as 70% of the cost driver, as the median range for this type of construction is between $160 and $170 per square foot. Not surprisingly, New York tops the charts for the most expensive city to build in for every type of structure.
On the other hand, convenience stores are generally less expensive to construct than other building types due to their more simplistic architectural nature. The median cost for this commercial building type is usually around $100 per square foot. However, with the new trends in fast-food becoming more of a boutique experience, the cost for a typical fast food restaurant is steadily on the rise. Expenses for kitchen equipment also drive the costs of this building type to a median of nearly $200 per square foot.
Additionally, climate also plays a big part when it comes to location-specific expenses – for example, buildings in colder climates may need to handle large volumes of snow and therefore be engineered accordingly; the same logic would apply for structures that are built in areas prone to hurricanes.
With so many variables involved, price figures per square foot can vary radically in the instance of commercial steel buildings. While the interior and exterior finishes are the primary contributors to driving overall costs, local building regulations can also influence the cost of a steel commercial building. Before signing a contract for a prefabricated steel commercial building, it pays to check into local building requirements to ensure the building will satisfy building codes. Furthermore, most local jurisdictions require a building permit for the construction of a commercial steel building.
U.S. Commercial Property: Facts & Statistics
According to Statista.com, commercial property refers to property used for business purposes. A popular area for investors, commercial properties are often rented out to other individuals or companies, who then use the spaces to run their businesses. The U.S. commercial property sector is comprised of the following key segments: industrial, retail, office, lodging, and amusement. The value of private office construction starts in the United States amounted to 6.6 billion U.S. dollars in the first half of 2017.
The site also reports that the commercial construction industry in the U.S. has been steadily expanding since 2010. For instance, approximately 72.24 billion dollars’ worth of commercial buildings were constructed in the United States in 2016. The number of individuals employed within the industry has increased accordingly, and projected to continue through 2018.
Statistics have also shown that commercial rents are on the rise in all sectors: while average retail rent was projected to rise by 0.9% by the end of 2016, rental rates in the office real estate sector was set to increase by 1% in the fourth quarter of 2016. Most notably, vacancy rates in both the retail and industrial real estate sector have shown a declining trend, and were projected to amount to 11% and 6.3%, respectively, as of the third quarter of 2018.
Helpful Tips: Options To Consider For Your Next Commercial Construction Project
Depending on the breadth and type of commercial construction project you are planning, there are a number of different ways to save and/or allocate your expenditures when pricing out materials and labor. Below, a general guideline to keep in mind when researching your options:
- Manufacturers: Because manufacturers often sell to the public, you don’t have to pay for the markup costs of a middleman. However, it’s important to note that the manufacturer only makes the buildings; they will not assemble it for you. Therefore, if you wish to customize your building, you have the option to work with a designer to meet your requirements and aesthetic/architectural specifications. Insulation may or may not be available from the manufacturer, and in most cases, your foundation will not be included.
- Brokers: This may be a feasible option for your commercial construction project if you have a fairly concrete idea of what you want. A broker can research the various manufacturers, bargain on your behalf for the best price, and take care of buying the building and getting it delivered. However, you will still be responsible for the foundation and insulation of the building.
- General Contractors: If you choose to work with a general contractor, they typically have a preferred manufacturer or broker. The GC will arrange for the purchase, delivery, and assembly as part of their own contract with you; in addition, the markup on the building will most likely be a part of their bill to you. While working with a GC is the fastest and most convenient way to execute a project, it may not be the most cost-effective.
Looking Ahead: Cost-Impact Factors For Commercial Construction In 2018
Based on the information covered in this article, it should come as no surprise that the cost of constructing new commercial spaces is changing in 2018. In fact, research indicates that it may be a good time to invest in commercial, industrial, and multifamily construction across the U.S. Below, some of the national and local industry factors that currently impact the cost of commercial construction in 2018:
Cost of Insurance on Construction Materials
Across the United States, the cost to insure non-combustible construction materials (e.g., concrete) is less costly than insuring combustible construction materials (such as wood and plastic). Insurance costs may also be higher in some regions of the country where environmental and geographic features can increase the risk of structural damage.
For example, in New Jersey, the cost to insure concrete is far cheaper than the cost to insure wood. Insurance premiums for commercial properties in Edgewater, New Jersey were estimated to cost over $52,000 to insure wood, compared to $22,120 to insure concrete. In commercial property construction, opting to construct with concrete instead of wood will lead to an average of 57.7% savings. Additionally, insurance rates can also be dependent on specific architectural factors, such as how a commercial property’s roof is constructed. Construction companies have different insurance pricing systems, so insurance prices fluctuate across the state. Therefore, it’s wise to compare contractors before you proceed with any commercial construction project.
It was projected that in 2018, fabricated steel would see a substantial drop in price. However, with President Trump’s recent plans to place heavy tariffs on steel imports, this could impact the cost of fabricated steel dramatically. The US produces 5% of the world’s steel, one of the top five producers of steel in the world. China produces 49% of the world’s steel, followed by the European Union at 10% of global steel production.
Should the President’s 25% tariff on steel imports be passed into law, the cost of steel in construction would see a considerable increase. While the U.S. produces a fair amount of steel, the U.S. construction industry still relies heavily upon imported steel. There would also be a 10% tariff on aluminum imports, another material that is fundamental to sustainable construction efforts. Whether or not the steel tariffs pass through legislation will determine how the cost of steel changes, both domestically and internationally.
According to reports as seen in Curbed.com, there is a shortage of skilled construction laborers across the United States. Even with tax reform and regulatory rollback increasing optimism – many firms predict more business and new hires in 2018, according to a survey by the Associated General Contractors of America – builders and developers are uncertain as to where they will find additional skilled labor.
With the U.S adding roughly 210,000 new construction jobs in 2017 according to the Bureau of Labor Statistics, and currently experiencing low unemployment, the industry’s growth keeps it from getting ahead of rising demand for workers. Research has shown that part of this trend is due to the rise of younger generations pursuing white-collar careers over blue-collar careers. Explains Randy Strauss, owner of Strauss Construction in Amherst, Ohio, “The number one issues is the cost and availability of labor.” Generation ‘Z,’ which reflects individuals under the age of 21, are increasingly attending higher education over vocational schools. Frank Shaw, an economist with Fannie Mae, says that the data shows hiring and wages are up for construction workers, but building is still slow overall, based on pre-recession numbers.
In fact, ever since the recession, more than 1.5 million residential construction workers have left the industry, and those in today’s building trades have an average age of around 50, which in turn drives up the cost of labor. Since there are not many young professionals moving into a career as a construction laborer, the price of construction will continue to be more expensive than in years past. Therefore, the cost of employing skilled construction laborers will need to be a factor in your project’s budget.
Modular Options in Commercial Construction
With today’s ever-increasing popularity to comply with environmentally-friendly designs, modular construction options remain a popular choice for commercial construction. These green options consist of pre-fabricated pieces of a building, which are built off-site and consequently lead to minimal site disruption, as well as an efficient construction completion. The price of modular commercial construction can vary substantially, from costs ranging from $35 per square foot to as much as $100 or more per square foot.
On a national scale, modular construction costs average between $35,000 and $200,000. Research has shown that the cost of modular commercial construction across the country will be impacted by the labor shortage and cost of construction materials. However, since the site for construction is shorter, the expenditures for skilled laborers will be less costly than in other projects.
Increased Demand for Industrial Spaces
As the rise of e-commerce giants such as Amazon and Blue Apron increases, the demand for new industrial spaces across the country continues to grow. Because of the heavy demand, the cost to rent industrial spaces is extremely expensive, with some spaces costing as much as $88 per square foot. Although constructing a new space may seem costly at first glance, it will be a wise investment in the long run.
Due to the reliance upon more expensive materials (such as steel), a larger industrial space will cost more to construct at the outset; however, the cost per square foot will be more attractive to new clients. New industrial warehouse construction will, therefore, find tenants easily due to the increased demand for more space.
In summary, the cost of commercial construction will be heavily impacted by the fluctuating costs of building materials. The shortage of skilled construction laborers will also impact construction expenditures. However, according to statistics and current industry trends, the United States is poised to see growth in construction efforts throughout 2018 and beyond.