Commercial construction cost estimation is a crucial aspect of the construction industry as it sets the foundation for the budget, project timeline, and overall success of a project. It is a complex process that requires careful consideration of various factors such as materials, labour, equipment, permits, and contingencies. The cost estimate must be accurate and detailed, taking into account all possible costs, to avoid any surprises and unexpected expenses during the construction process.

The purpose of a cost estimate is to provide an estimate of the construction cost and to provide a basis for the project budget. The cost estimate must be accurate to ensure that the project is completed within the budget and timeline. An accurate cost estimate is also essential for project financing, as it provides lenders with the information they need to make informed decisions about funding the project.

The cost estimate must be comprehensive and detailed, including all direct and indirect costs. Direct costs are those costs that are directly related to the construction of the project and include materials, labour, and equipment. Indirect costs are those costs that are not directly related to the construction of the project but are still necessary for the successful completion of the project. These costs include permits, insurance, and contingencies.

Materials are a significant component of the cost estimate. It is essential to consider the cost of materials, including shipping and handling, when estimating the cost of a construction project. The cost of materials can be affected by several factors, including the type of materials used, the availability of materials, and the location of the project. For example, materials that are in high demand may be more expensive, and materials that are not readily available may need to be sourced from further away, which can increase the cost of shipping and handling.

Labour is another important component of the cost estimate. It is essential to consider the cost of labour, including benefits and taxes, when estimating the cost of a construction project. The cost of labour can be affected by several factors, including the skill level of the labour, the availability of labour, and the location of the project. For example, labour that is in high demand may be more expensive, and labour that is not readily available may need to be sourced from further away, which can increase the cost.

Equipment is a significant component of the cost estimate. It is essential to consider the cost of equipment, including maintenance and repair costs, when estimating the cost of a construction project. The cost of equipment can be affected by several factors, including the type of equipment used, the availability of equipment, and the location of the project. For example, equipment that is in high demand may be more expensive, and equipment that is not readily available may need to be sourced from further away, which can increase the cost of transportation.

Permits and insurance are indirect costs that are essential for the successful completion of a construction project. It is essential to consider the cost of permits, including application fees and any required inspections, when estimating the cost of a construction project. The cost of insurance, including liability insurance and workers’ compensation insurance, must also be considered when estimating the cost of a construction project.

Contingencies are another indirect cost that must be considered when estimating the cost of a construction project. Contingencies are funds set aside to cover unexpected costs that may arise during the construction process. It is essential to consider the cost of contingencies, including the amount of money set aside, when estimating the cost of a construction project.

In conclusion, the cost estimate is a critical component of the construction process and must be accurate and detailed to ensure the success of the project. Accurate cost estimation requires careful consideration of various factors such as materials, labour, equipment, permits, and contingencies. Detailed and precise cost estimates are necessary for effective project planning and to ensure the success of a commercial construction project.

If you’ve been paying attention to your superannuation or share portfolio balance over the past few weeks you’ve probably noticed the Australian stock market has had a bumpy ride.

There’s many reasons for that, but one worth noting in relation to the property market is the current volatility in iron ore, steel and lumber costs.

We typically think of the property sector and the stock market to be mutually exclusive investment decisions (unless of course you’re investing in listed property trusts, and that’s a whole other topic).

The purpose of this article is not to talk about the stock market. There are plenty of resources and more qualified commentators to discuss that topic.

But whilst you might have noticed the fluctuations in the ASX, the follow on impact of these rising prices on the construction industry and commercial construction cost is sometimes a little harder to fathom.

In a recent article in the Australian Financial Review back on the 1^st December 2021¹, Rich Lister Harry Triguboff was quoted as saying “The building costs are going up a lot…It’s not a matter of the labour force asking for a 5 per cent increase. Iron Ore prices have come down, but steel has gone up. And it’s going up by a lot, not by 2 per cent – [but by] 10-20 per cent. It’s going up a great deal.

The same article noted property leaders, Dexus CEO Darren Steinberg and Lendlease CEO Tony Lombardo, addressing the rising costs of lumber and steel.

“This is going to put price increases on construction,” Mr Steinberg said.

Unfortunately recent media coverage of building companies struggling with solvency issues only highlights the difficulties in the development sector as a result of increasing commercial construction costs.

The other challenges of staff shortages and logistics delays that are being felt across all sectors as a result of COVID have only served to exacerbate the issues.

It’s more important than ever for anyone operating in the development space to have clear feasibility analyses and a robust commercial construction cost breakdown.

It’s not just the current cost of materials that need to be considered.

With heavy speculation that interest rate increases are becoming inevitable, it’s likely that the cost of capital will soon increase.

Not only that, there is current volatility in the retail, housing and commercial office sectors.

Return to work options and the ongoing debate regarding the take up of commercial office space has valuers scrambling to determine the correct metrics on which to base their assessments.

Retailers face a constant battle of staff shortages and COVID outbreaks impacting consumer demand.

It’s not all bad news though.

The housing market continues its strong trajectory, strengthened by opening boarders and the low interest rate environment.

Whilst it appears to have come slightly off the boil, demand is still strong and looks set to continue for some time yet.

So what does all this mean for commercial construction cost?

Developers can’t afford to get their budgeting wrong.

Whether it’s office, housing, retail, industrial.

There’s too much riding on it.

Before a project budget or feasibility for a proposed development is even considered, it is imperative that a preliminary cost plan be completed.

This report will typically be based on cost allocations per square metre of the Gross Floor Area (GFA) of the development. This is largely due to the preliminary nature of the design and documentation at this point.

The Preliminary Cost Plan will establish a working budget for each project element (substructure, columns, external walls, internal walls, floor finishes etc). The Plan forms a valuable assessment tool in the design decision-making process.

MCG Quantity Surveyors are acutely aware of the demanding and competitive nature of the construction industry. We make it our priority to ensure turn around times are consistently met and that our clients are kept up to date with the status of projects and reports.

We may not be able to control the stock market, but we can definitely help get a firm handle on your commercial construction costs.

We think that’s a pretty important step.

References

¹Bleby, Michael “Rising costs a risk for developers and builders: Triguboff” 1 December 2021 <afr.com

Tag: Commercial construction cost

The Ins and Outs of Commercial Construction Cost Estimation

Why You Need to Understand Your Commercial Construction Cost Well Before You Break Ground

Offices Across Australia

Property insights from MCG, straight to your inbox

Offices Across Australia