Brookstone Builders Newsletter: Construction Costs

The Million Dollar Question

A question that most contractors dread is – “How much will it cost per square foot to build, or renovate, this building?” It’s certainly not that contractors don’t want the work – they dread it because they’ll have to try to adequately explain why there is not a clear-cut answer due to all of the variables involved, without scaring off the customer. The cost of commercial construction projects fluctuates a great deal depending on a variety of factors. Here are the top cost-drivers that can skew the price tag higher or lower.

Location, Location, Location
There are several geographical factors to take into consideration when determining costs. Location alone can represent as much as 70% of the cost driver for a single-story office building. Building in earthquake-prone or hurricane-prone areas will cost more due to strict code requirements to meet those environmental challenges. The type of soil and terrain will determine how much site work will be necessary. Living in the “granite” state, we know this first hand as the cost of relocating granite is costly.
Type of Building
Every type of building comes with its own criteria and parameters for completion. A new metal building warehouse will have a much lower square foot price than a metal building for offices. The exterior construction may be similar, but the interior finishes will differ drastically. Likewise, warehouses will be less than retail buildings or medical clinics.

Building from the ground up versus utilizing an existing building can make a huge difference in price as well. It’s logical that renovating a building would cost less, but that also comes with many variables. At times a finished building is left in “shell condition”, meaning that all interior items still need to be completed. This allows a new tenant the chance to fit it up to their needs without having to remove or alter existing structures, although the overall renovation expense is generally higher.

The alternative is known as “second-generation” space, meaning that the building has been occupied before so most or all interior work is complete and move-in ready. Normally only minor renovations are needed, such as paint and carpet, and possibly some walls or additional offices. However, if it’s an older building or the use of the building will be changing, more extensive renovations may be needed to bring it up to current building codes. For example, if abatement in an older structure is necessary, it can add to the renovation cost.
Size of Building
It’s common sense to think that the larger the building, the more it will cost, since more materials and labor will be necessary. However, economies of scale play a big role in many building projects, which can lower the square foot price. Fixed costs such as a contractors’ overhead expenses, along with discounts for ordering materials in bulk, usually mean large projects will have a lower price per square foot than smaller projects.
Materials and Finishes
Interior and exterior finishes are a primary contributor to driving overall costs for each type of construction project. The cost of items like windows and doors, cabinetry and woodwork, and carpet/flooring can drastically vary. If the building will have heavy use and lots of traffic, commercial grade finishes would be wise. A company with a lot of client interaction such as a law firm or medical office may be willing to pay more for quality finishes. Another big consideration is the projected clientele of the building if space will be leased. For example, luxury apartments will have higher quality finishes than an apartment building near a university campus.
What is Included?
When a contractor quotes a construction price it’s imperative to understand what it includes. Is it strictly for the materials and labor or everything that’s necessary to complete the project? Items such as architectural design, engineering and surveying, and permitting costs can add quite a bit to a projects total cost.

It’s natural to want to get a fair price and not pay any more than necessary for a construction project. But it’s also important to remember that trying to achieve a low construction cost could actually be more expensive in the long term, as focusing too much on the cost may come at the expense of quality. No matter what the project budget may be, there’s many variables when it comes to cost and there’s no simple one-size-fits-all answer to the million dollar question of, “What is the cost per square foot?”