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How To Estimate Commercial Construction Costs

How To Estimate Commercial Construction Costs

Construction cost estimates play an essential role in commercial construction. They help contractors bid on projects according to their budget and check their capability to complete the commercial project within the deadline without any restrictions. 

In short, before starting any construction work, an accurate analysis of all the costs, including material costs, labor costs, permits, and extra expenses, gives them an upper hand over other construction businesses and helps them to maintain their profitability while ensuring the project completion within time and the project budget. It’s one of the most crucial steps to streamline the commercial construction project. 

Let’s have a look at how to estimate commercial construction costs

Steps To Estimate Commercial Construction Costs

Here are some steps to deepening one’s knowledge of commercial construction costs, and each step is of primary importance.

Preliminary Estimates

The first and foremost step in estimating commercial construction costs is establishing a preliminary estimate. The first estimate gives the gross concept of the commercial construction project. It is done in the earliest stages of construction so the contractors and business owners can have a realistic check of finances and other factors and make an informed decision on whether to start the project. 

This estimate is based on the current market trends, material and labor costs, project size, and location, as all these factors tend to influence the overall commercial construction costs. 

For example, the project size significantly affects the overall commercial construction costs. The project’s location is also a critical factor in determining the cost estimate. If the project is located in an urban area, it might be more costly than a rural area because of the ongoing high material costs and land prices. 

Similarly, the market trends also play an essential role in this regard. The overall budget cost includes the material and labor costs, and it will increase if the current material prices are high in the commercial construction market.

Detailed Estimates

As the project moves ahead and the project design is further elaborated, a detailed estimate is created. This estimate looks deep into the project specifications to see if any additional expenses are being added to the commercial construction costs. The construction contractors collaborate with engineers and architects to delve deep into the project to comprehend the size and span of the construction project completely.

By having a deep analysis, they calculate all the material and labor costs. They check the costs and extent of need for various systems that need to be installed in the project, such as electrical, plumbing, and HVAC systems, which need to be elaborated in the preliminary estimate.

Moreover, they consider various other factors, such as difficult site conditions, and the steps to improve those conditions. All these add to the overall commercial construction costs. This process gives you a clear picture, so you have a more concise budget estimate. 

Bid Preparation

When the detailed estimate is done, all that information is used to create a bid. A bid is a document submitted to the construction business owner containing a list of all the expenses anticipated by the commercial contractor. The bid must be most accurate and competitive to ensure the contractor gets its due profit percentage. 

To create a bid, a contractor looks deep into all the bid documents, reviews all the project designs and specifications, considers market trends, and establishes connections with the market vendors to have affordable and competitive prices in the region. An accurate and precise bid is essential as it increases the chances of winning the project. 

Change Management and Adjustments

Even with the most accurate estimates, change order issues arise in commercial construction. These issues can be due to the sudden rise in material prices, design modifications, shifts in the construction market, and unexpected conditions like poor soil conditions. In such situations, change order management is critical. 

Construction contractors must stay informed and keep their commercial budget estimates flexible to make a place for these change order modifications and adjustments. For example, if the steel costs are inflated suddenly due to shifts in the construction market, the overall price of commercial construction will also increase. 

Staying informed and adjusting the budget estimates as new information comes can help the contractors avoid these costly blows. In this way, they can ensure that the project stays within the budget and is completed on time. All this information must be channeled through proper communication with the project owner in order to avoid any misconceptions and to keep everyone aligned with the project cost. 

Factors Influencing Commercial Construction Costs

Several factors influence the overall commercial construction costs, some of which are described below:

Building Type

Commercial construction costs highly depend upon the building type as the size and scope of the building significantly affect the material and labor costs, ultimately affecting the overall commercial construction costs. For example, a single-story office costs $250 to $437 per square foot, while a multi-story building cost may range from $430 to over $1000 per square foot.

Because of their size, shopping malls may be more expensive for your wallet. A neighborhood strip center costs around $371 per square foot, while the local malls can go over $571 per square foot. The medical facilities may cost even more because of the specialized instruments and installed facilities. Depending on specialized needs, they range from $451 to $1018 square per food. Every facility has its own kind and level of infrastructure and systems, which significantly impact the overall commercial construction costs.

Labor Costs

Labor costs are a vital part of any commercial project, as they account for 10-20% of the total commercial construction costs. These expenses rely on various factors like the number of workers, the type of workers (skilled and unskilled), the project size, and location. Construction projects in urban areas are charged more than in rural areas because of surging labor costs and demands. 

For example, building hospitals or skyscrapers requires a more significant number of workers due to the massive size and expertise to complete the project efficiently, thus increasing the overall costs. These costs include wages, benefits, medical, permits, training, and safety measures.

Material Costs

Material costs vary depending on the design requirements and the existing market trends. For example, steel, generally utilized in complex structures like high-rises, is more costly, remarkably, when market prices increase. Concrete, ordinary for foundations and more straightforward buildings, is generally less expensive.

Market conditions, such as raw material shortages or higher transportation costs, can cause an inflation in prices. Since materials account for 17-25% of the total cost, small price changes can significantly impact the budget.

Location

The location of the construction project is another crucial factor in estimating commercial construction costs. Commercial construction costs are higher in urban areas due to increased land prices, costly labor charges, and taxes than in rural areas. For example, commercial construction costs in California are relatively higher than in other states of the USA. 

Furthermore, the costs of commercial construction in specific areas and vicinities like flood-hit and earthquake-affected areas are higher because of low accessibility and poor site conditions.  

Finishes and Fixtures

Finishes and fixtures like flooring, lighting, and countertops also affect commercial construction costs significantly. Costly finishes like marble flooring and custom lights boost the overall construction charges, while economic options like laminate flooring can help keep the cost estimates within the budget. 

The premium finishes and fixtures can increase commercial construction costs by up to 19%, but a wise choice in selecting these fixtures can help reduce the cost overruns and complete the project within time.

Design and Engineering Fees

Depending upon the project’s scope and size, the design and engineering fees of the commercial project cause 1-16% of the total cost estimate. Smaller projects like a residential building can cost 1-2% of the total commercial construction costs, while a massive project like a hospital or shopping mall can cost up to 16% of the total cost estimate. 

This percentage mentioned above includes the fees that designers and engineers cost to design a commercial project. As the intricacies of the commercial project increase, this fee boosts the manifold.

Permits and Legal Fees

Permits and legal fees contribute to the 0.5-2% of the total commercial construction costs. This fee varies from project to project and location to location as different areas have different permit fee, regional construction codes, and regulations. This fee covers all the fee ranging from construction approvals to safety inspections after construction. 

The legal fees incurs to ensure that all the necessary paperwork and agreements have been finalized between the clients and contractors. Although this portion of legal fee is minimal, but it ensures to streamline the construction process of the project.

Mechanical Systems (HVAC)

HVAC systems (ventilation, heating, and air conditioners) are crucial for maintaining comfortable spaces in residential, commercial, and industrial buildings. Estimating costs for HVAC requires a profound knowledge of the technical skills and experience needed to generate an accurate estimate. Before evaluating, you should understand the components of HVAC systems and how they work. 

You should grasp the types of HVAC systems commonly used in private and public spaces. The level of comfort you want at each level also affects the number of HVAC systems installed. Similarly, harsh weather conditions, either too hot or too cold, significantly impact HVAC cost estimates. All these factors contribute to the overall commercial construction costs of any project. 

Conclusion

Precise and flexible commercial construction cost estimates are necessary for the success of any construction project. Beginning with a detailed estimate and adjusting to the construction needs and specifications, the construction contractors can ensure that their project stays within the cost budget and is completed on time. This will safeguard them against the blows of costly surprises and time overruns. This allows for more informed decisions and increasing the annual revenue.

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