A Closer Look at Hard Costs in Commercial Development | Michael McVinney
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A Closer Look at Hard Costs in Commercial Development

This post originally appeared on SimonCRE Insights Blog and is republished with permission. Find out how to syndicate your content with theBrokerList.

When budgeting for a commercial development project it’s important to remember that costs typically break down into two broad categories: hard costs and soft costs.

Considering the impact of a thorough budget on the success of a development project, you should be aware of some of the specifics of these cost breakdowns.

In this post, we take a closer look at what hard costs are and what comprises those costs in the commercial real estate development process.


What are Hard Costs?

These costs consist of tangible and quantifiable materials and elements of the development project. Typically associated with the construction phase, hard costs are related to the building’s structure, the site, landscaping, and any equipment that is fixed. One of the biggest factors impacting hard costs is varying material and labor costs.

A Closer Look at Hard Costs

Here is a list of some common construction hard cost items.

Building Shell
This category includes all materials required to complete the whole building or structure. The structure consists of the foundation, framing, floors, roof, finishing work, etc.

Parking and Additional Paving
This includes grading, paving, striping, curbs, and any parking islands. Some of the work may fall into the off-site improvement category and might include items such as a pedestrian sidewalk, along with curb and gutter. It may also involve deceleration/acceleration lanes for higher traffic users.

Site Work and Landscaping
Site work typically includes all utilities underground, water systems, drains, fire, grading, to name a few. As for landscaping, these costs involve putting in grass, trees, shrubs, mulch, and other aesthetic items.

HVAC, Electrical, and Other Equipment
These costs are for HVAC units, installation, and cranes and other equipment needed to install the units. Technology and security costs. Electrical and other equipment will include lighting, technology and security costs, phone and communication systems.

Construction Labor
Beyond just the physical elements that make up the interior and exterior of a site, you have to account for the costs of the labor. This includes general contractors and subcontractors such as carpenters, electricians, plumbers, and any other specialties.

Change Orders
These items may sometimes be itemized under the building structure, but may also be factored in separately. These can vary from market conditions and labor costs to weather conditions and other unforeseen circumstances.

This cost covers the amount of money reserved for unforeseen conditions that might affect the construction process. This money is on reserve and is not allocated to any specific area of work.

How They Impact Your Development

Hard costs typically account for roughly 70 percent of your total construction budget. Varying project specifications can make hard costs more difficult to estimate. Additionally, changing economic factors such as rising material and labor prices can result in significant increases in project hard costs.

In the end, overall construction costs impact factors such as a tenant’s rental rate to the projects overall return on investment. It’s always important to have a detailed breakdown of a project’s hard construction costs and to know the effect that they have on its economic viability.

Determining hard costs are challenging, and the accuracy of an estimate can make a difference in whether or not a project is feasible. Finding the right partner gives you the confidence you need to know so your next construction project can stay on budget and schedule.

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