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Cost Associated with Constructing New Commercial Buildings and Build-Outs

Cost Associated with Constructing New Commercial Buildings and Build-Outs

Constructing commercial buildings distinguishes itself from residential projects due to specific regulations it must comply with, the necessity to withstand formidable natural elements, and the constant influx of customers, imposing heavy wear and tear on the structure. 

Numerous facets demand attention when it’s about commercial property development. Given the scale of operations, commercial ventures necessitate robust machinery, an increased workforce for construction, and superior-quality materials exceeding those typically utilized in residential constructions. 

Analyzing the Components of a Commercial Construction Project 

Determining the expenses involved in erecting or renovating a retail or dining establishment necessitates a thorough examination of various project elements, such as: 

  1. Foundational Work
  2. Installation of Windows and Doors
  3. Electrical Wiring and Lighting Fixtures
  4. Roofing Materials and Installation
  5. Flooring Solutions
  6. Setup of Equipment
  7. Plumbing Installations
  8. Heating, Ventilation, and Air Conditioning (HVAC) Systems
  9. Procurement of Materials and Delivery: Contractors typically purchase materials in large quantities and resell them to property owners with a markup. Transportation of these materials incurs additional charges, usually paid to a distributor unless the construction company handles delivery themselves.
  10. Labor Costs: Apart from material expenses, labor costs constitute a distinct aspect. Payment for labor may vary, with some workers compensated based on output (such as square or linear footage) while others receive hourly wages. These rates are commonly established through negotiations with subcontractors and contractors before the commencement of construction. Recognizing the distinction between labor and material expenses is crucial for effective cost estimation and budget management during a build-out project.

Understanding Build-Out Costs – What are they?

Build-out expenses refer to enhancements or modifications made to an existing structure. In construction, these additions typically translate to increased expenditures for retailers, eateries, and office spaces. The rationale behind this lies in the correlation between additional square footage and amplified capacity for merchandise, clientele, and staff, subsequently paving the way for heightened revenue prospects. 

For retailers, build-outs span a spectrum of enhancements, ranging from enlarging floor space and adding stories to incorporating fixtures, refreshing interiors with new paint or flooring, altering or removing partitions, and introducing eye-catching exhibits to attract more foot traffic. Some retail establishments and dining venues opt for unconventional displays that resonate with their brand identity. 

Referred to interchangeably as tenant finishes or commercial tenant improvements, build-out costs assume significance owing to the dynamic nature of commercial leasing. When a new lessee takes over commercial property, their intended use often diverges from that of the previous occupant. Consequently, negotiations ensue with the landlord, or the lessee bears the cost independently, engaging the services of designers and project managers to revamp the space in alignment with their company’s ethos and objectives.

Per Square Foot Costs for Commercial Construction

An investigation conducted among retail businesses nationwide revealed the precise expenses attributed solely to construction (prior to embellishing and furnishing their establishments to align with their brand identity). This investigation covered all construction facets, comprising: 

  1. Fixtures and Appliances
  2. Roofing
  3. Flooring
  4. HVAC
  5. Lighting and Electric
  6. Signs

The investigation specifically focused on two distinct categories: standalone retail outlets and lessee enhancements for retail establishments within shopping centers. Here are the outcomes of the investigation: 

Costs for constructing commercial properties vary based on the type of building. When it comes to freestanding stores, two prominent categories emerge: 

Freestanding Stores 

  1. Retail Stores: This category covers various establishments, including chain grocery stores, convenience stores, and outlets selling home goods. Construction costs for these retail spaces tend to be on the higher end, averaging between $60.45 and $70.06 per square foot.
  1. Big Box Stores: These large retail outlets, often specializing in home improvement products, rank as the second most expensive to build. Construction expenses for big box stores typically range from $44.25 to $48.00 per square foot.

Per Square Foot Costs in Commercial Construction 

Tenant build-outs, including establishments such as retail stores, convenience stores, and shopping malls, demonstrated an average expenditure of $56.53. This expenditure covers interior enhancements, such as drywall, ceiling, paint, flooring, and stairs. However, it’s important to note that this figure excludes the installation of fixtures or appliances within the structure. 

Analyzing Expenses for Each Square Foot 

In addition to compiling data on retail construction expenses, the survey also gathered information on outfitting costs. Outfitting involves adding final touches to a structure once the primary construction phase concludes. Key components and average expenses for outfitting include: 

  1. Displays and Fixtures: These typically range from $7 to $11.57 per square foot.
  2. HVAC: The cost for HVAC systems amounts to approximately $2.61 per square foot.
  3. Roofing: Roofing expenses vary between $3.59 and $4.41 per square foot.
  4. Ceiling: Ceiling installation costs fall between $0.42 and $1.81 per square foot.
  5. Signs: Indoor signage installation averages about $0.93 per square foot, while outdoor signage installation averages $1.43 per square foot.
  6. Indoor Lighting and Electric: These expenses range from $3.20 to $3.85 per square foot.
  7. Flooring: The cost for flooring typically falls within the range of $2.76 to $3.77 per square foot.

The survey highlights an upward trend in construction and outfitting costs, posing increased financial challenges for property owners. Although the shifts may seem marginal in terms of monetary value, they significantly impact retail construction projects, particularly considering the substantial square footage typically involved in retail establishments.

Considerations for Restaurant Construction and Outfitting Expenses 

While retail and restaurant outfitting expenses share similarities, it’s important to differentiate them due to the unique standards within the restaurant industry. Given the fast-paced nature of restaurants, proprietors must prioritize additional equipment and precautionary measures during construction to mitigate potential hazards for both employees and patrons. 

Several factors and expenses merit attention when undertaking restaurant construction: 

– Slip-resistant flooring: Given the prevalence of greases and oils in restaurant environments, slip hazards pose a significant risk. Utilizing restaurant-grade tiles serves as a primary preventive measure against accidents and injuries. Opting for textured flooring enhances shoe traction for both staff and customers, minimizing the likelihood of slips and falls. 

– Enhanced kitchen ventilation: With restaurant kitchens often operating continuously to cater to large volumes of customers, adequate ventilation becomes paramount. Supplemental ventilation systems, along with commercial-grade air conditioning units, not only ensure employee comfort and safety but also safeguard food from spoilage. 

– Spacious restroom facilities: For larger restaurant establishments or chains, accommodating the influx of patrons necessitates ample restroom space to cater to their needs effectively.

– Adequate lighting: Proper lighting is indispensable for restaurant operations. Enhanced illumination in kitchen areas ensures food safety standards are met, while ambient lighting contributes to the overall atmosphere of the establishment. Additionally, sufficient lighting aids in keeping food warm, especially on warming lines, facilitating efficient order preparation and service by waitstaff.

Commercial Construction Costs Per Square Foot in the USA 

To gain deeper insights into construction expenses in the retail and restaurant sectors, it’s valuable to examine the current costs per square foot across various regions in the U.S.:

Western USA: Construction costs range from $277 to $1001 per square foot in cities like San Francisco, Los Angeles, San Diego, Las Vegas, Seattle, Portland, and Honolulu, covering single-story to high-rise buildings.

Midwest USA: Costs range from $135 to $914 per square foot in cities such as Denver, Chicago, and Nashville, spanning single-story to high-rise buildings.

Southern USA: Construction costs vary from $235 to $674 per square foot in cities like Atlanta, Dallas, Miami, and Orlando, encompassing single-story to high-rise buildings.

Eastern USA: Costs fluctuate from $233 to $1026 per square foot in cities such as Washington D.C., Philadelphia, New York, Boston, and Raleigh-Durham, covering single-story to high-rise buildings.

Final Thoughts

Completing a construction project, whether it’s erecting a new commercial building or customizing a space for a restaurant, demands careful financial planning. Every aspect, from the illumination and flooring to the roofing and signage, carries its own price tag. It’s crucial for property owners to grasp that the overall expense hinges on the building’s total area and the maximum budget they can allocate for the endeavor.

Prioritizing safety is paramount. Property owners must not compromise on essential elements such as materials, ventilation, lighting, or flooring. It’s imperative to adhere to established norms for commercial establishments to ensure that the venue, be it a restaurant or retail outlet, not only offers comfort to patrons but also meets safety regulations.

FAQs

What costs are involved in building new commercial structures or modifying existing ones?

Building new commercial structures or modifying existing ones includes expenses for materials, labor, equipment, and services, which can vary based on project size, location, and specific needs.

What factors should I consider when planning a commercial construction project?

Consider foundational work, windows and doors installation, electrical wiring, roofing, flooring, equipment setup, plumbing, HVAC systems, material procurement, and labor costs.

What are build-out costs, and why do they matter in commercial construction?

Build-out costs cover improvements to existing structures, like those needed by retailers or offices. They’re crucial for tailoring spaces to tenants’ needs and branding, impacting leasing agreements and overall property value. 

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