Error-less costs estimate plays a crucial role in determining the success of a project in commercial construction. Before any construction begins, knowing how much the entire project will cost, including labor, materials, equipment, and other expenses, is essential. If estimates are correct, projects can quickly avoid problems.
In short, knowing how to estimate costs correctly protects the project’s budget, ensures timely completion, and supports overall profitability. It’s one of the most essential steps to check a construction project goes smoothly.
Steps to Estimate Commercial Construction Costs – How to Do?
Each stage is beneficial for the successful completion of the commercial building project.
Preliminary Estimates
The first step in estimating commercial construction costs is the preliminary estimate, which gives a rough idea of the cost of a project. These early estimates help determine if the project is financially realistic before spending too much time or money on it. Contractors and estimators make this estimate based on the size of the project (or scope), the location, and current market trends.
For example, the size of the building, the materials needed, and labor costs will vary depending on where the project is. Construction in an urban area might be more expensive than in a rural town due to higher labor and land costs.
Market trends also play a role—the overall estimate will increase if material prices (like steel or concrete) are high. This first estimate helps decide whether to move forward with the project or make adjustments to the plan.
Detailed Estimates
As the project progresses and the design develops, a detailed estimate is created. This estimate delves deeper into the specifics, calculating the exact amount of materials, labor, and equipment needed. Contractors will review project plans and work closely with architects and engineers to understand the full scope of the construction.
For example, during the detailed estimate, contractors factor in things like plumbing, electrical systems, and HVAC units, which may have needed to be clarified during the preliminary estimate. They also account for specific challenges, such as difficult site conditions or custom designs, that can add to the project’s complexity and cost. This process ensures the estimate reflects the actual expenses as closely as possible, giving a clearer picture of the final budget.
Bid Preparation
After completing the detailed estimate, contractors use this information to prepare their bids. A bid is a proposal submitted to a project owner that details how much the contractor expects the project to cost. The bid must be competitive and accurate enough to ensure the contractor makes a profit.
To prepare a successful bid, contractors review the project documents, consider current market conditions, and decide on a price that balances affordability for the client with profitability for their company. A well-prepared bid improves the chances of winning the contract, so having an accurate and thorough detailed estimate is critical.
Change Management and Adjustments
Even with the best estimates, construction projects often face unexpected changes. These changes can be due to design modifications, rising material costs, or unforeseen site conditions like poor soil quality. In such cases, change management is crucial.
Contractors must adjust their estimates when costs rise unexpectedly to account for these changes. For example, if the price of steel suddenly increases due to market shifts, the project’s overall cost will rise. By staying flexible and updating estimates as new information becomes available, contractors can ensure the project remains on track financially, reducing the chances of going over budget or delaying the project. Proper communication with the project owner is vital during this phase to keep everyone aligned and avoid misunderstandings.
You’ll have to sum up some of the elements we’ve discussed above to get a good idea of the cost of your commercial building,
Factors Influencing Commercial Construction Costs
Necessary assessments of the parameters support your project.
Building Type
Commercial construction costs vary significantly by building type. For instance, a single-story office typically costs $250 to $437 per square foot, while high-rise offices range from $430 to over $1000 per square foot.
Due to their size, retail buildings like shopping centers are more expensive. A neighborhood strip center costs about $371 per square foot, while regional malls can go up to $537. Medical facilities, which require specialized infrastructure, range from $451 to $1018 per square foot, depending on their equipment needs. Each type has specific requirements, such as infrastructure and systems, that affect the final cost.
Labor Costs
Labor costs are a significant part of commercial construction, typically accounting for 20-40% of the total budget. These expenses vary depending on worker type (e.g., electricians, plumbers), the complexity of the project, and location. Urban areas generally have higher labor costs due to greater demand and wages.
Larger projects, like skyscrapers or hospitals, need more workers and specialized skills, increasing costs. These costs include wages, benefits, training, and safety measures, adding to the overall expense.
Material Costs
Material costs fluctuate based on design requirements and market conditions. For example, steel, often used in complex structures like high-rises, is more expensive, significantly when market prices rise. Concrete, ordinary for foundations and more straightforward buildings, is generally less costly.
Market conditions, such as raw material shortages or higher transportation costs, can increase prices. Since materials account for 17-25% of the total cost, small price changes can significantly impact the budget.
In addition to labor and materials, calculating the quantity of construction materials is crucial for avoiding costly mistakes.
Location
Location is a significant factor in construction costs. Building in urban areas costs more due to stricter zoning laws, higher land prices, and expensive labor. For instance, construction in New York City costs more than in smaller towns.
Special construction techniques are required in regions with challenging terrain or environmental regulations, like flood zones or earthquake areas, further increasing costs.
Finishes and Fixtures
Finishes and fixtures—like flooring, lighting, and countertops—can greatly affect the total cost. High-end finishes such as marble and custom lighting drive up expenses, while more affordable options like laminate flooring help balance the budget.
Premium finishes might take up 29% of the project’s total cost, while modest choices can significantly reduce that percentage. By choosing wisely, project owners can manage costs without compromising quality.
Design and Engineering Fees
Design and engineering fees typically range from 1-16% of the total project cost, depending on the scope and complexity of the project. Smaller projects incur fees closer to 1-2%, while larger, more complex projects like hospitals or high-rise buildings reach 16%.
These fees cover the architects and engineers who design the building and ensure that all structural and safety codes are met. As the project grows more complex, so do the fees due to the need for more detailed designs and specific expertise.
Permits and Legal Fees
Permits and legal fees account for 0.5-2% of the total construction cost. These fees vary based on the project’s location, as different regions have different regulations and requirements. Permits cover everything from zoning approvals to safety inspections.
Legal fees confirm that all contracts and agreements between the builders, contractors, and owners are adequately handled. Although this percentage is relatively small, it’s a necessary part of the project that guarantees everything runs smoothly and complies with local laws.
Mechanical systems (HVAC)
Major systems like HVAC (heating, ventilation, and air conditioning) are essential for the building’s functionality and comfort. The cost varies depending on the building type and complexity. A simple office building will need fewer HVAC and plumbing systems than a hospital or ample retail space, where specialized systems are required to maintain operations.
Conclusion
Precise and flexible cost estimates are necessary for the success of any commercial construction project. By starting with a detailed estimate and adjusting as the project progresses, contractors and owners can observe the project stays within budget while accounting for unexpected changes. Estimating costs properly supports preventing financial overruns, keeps the timeline on track, and allows for informed decision-making.
