“Commercial and multifamily construction starts increased 31% in South Florida to $4.5 billion in the first half of 2022, according to Dodge Construction Network. The Hamilton, New Jersey-based company said the tri-county region had the fourth-most commercial and multifamily construction starts, after New York; Dallas; and Washington, D.C.”
“In fact, the amount of construction in South Florida even exceeded the first half of 2019, ahead of the Covid-19 pandemic.”
Commercial construction growth in South Florida is booming, with many of the projects being multifamily housing. The rental pricing for apartments continues to increase at record levels, so developers are eager to capitalize on this market despite rising interest rates.
What dampens the rosiness of this news is that the cost of materials and labor continue to increase at the same time. In fact, “building materials prices increased 20.4% year over year and have risen 33% since the start of the pandemic.”
Coldwell Banker Richard Ellis (CBRE), the world’s largest commercial real estate services and investment firm, has their “Construction Cost Index” forecasting a 14.1% year-over-year increase in construction costs by year-end 2022 as labor and material costs continue to rise.
What does this mean for you, with a commercial building project?
What this means for those starting new construction projects in the restaurant, healthcare, industrial, and government areas is higher costs due to increasing prices for materials.
Here are just a few examples of the material costs we’ve seen skyrocket over the past twelve months:
- Paint: Some exterior paint prices have risen nearly 50% since the beginning of the pandemic.
- Ready to mix concrete: Since January, the price of ready-mix concrete has increased by nearly 9% this year.
- Transportation: The price of diesel fuel increased by 13% from January 2021 to April 2021 and is expected to continue to increase in the coming months, increasing the cost of transporting building materials to construction sites.
What can you do to manage your costs for your commercial construction project?
We always say that it’s important to create a budget and schedule for any new construction project and know that’s more crucial than ever. What are the elements you need to have in your budget and what is the timing of your project? Here are some of the elements to include:
- Architectural design of the space
- Engineering requirements for that design
- Mechanical
- Electrical
- Plumbing
- Fire
- Permits to do the work
- Design elements for the space (everything from seating to lighting and flooring)
- What the public sees vs. “back of the operation” they don’t see
- For restaurants, this is the kitchen and food storage areas
- For healthcare, this includes everything from medical equipment to supplies
- For industrial, this means office space vs. warehouse space and the differences between the two
- For hotels, this means what customers see vs. the areas they do not, from storage to inventory to offices
- Equipment needs – in a restaurant, for example, kitchen equipment varies depending on the type of food being served and the capacity of the dining area
- Leased space
- Financing (there’s a cost to setting up and operating any commercial venture)
- Labor costs (hiring, training, insurance, etc.)
- Legal costs
- Contingency costs – it’s critical to have funds set aside for price escalations, material delays and unforeseen expenses, which often happen during the timeline of the design-permit-build process.
These are the broad categories we’ve created; for a more in-depth spreadsheet, specifically for restaurant builds, download our ebook!
Start with Design Build
What is Design Build? This page provides a quick explanation of Design Build, which is essentially assembling the various elements and talent of a commercial construction project, so that everyone is working in harmony, “on the same team.”
This helps eliminate the back-and-forth from the designer/architect, engineer, and builder so that the project is thought out through all the phases of development under one team. Danto Builders offers Design Build capabilities, from concept and design through construction. With the added bonus that this process typically:
- Lowers costs by 5 – 6%;
- Leads to faster construction; and
- Allows for quicker completion of the project.
When the price of materials and labor is rising, the Design Build process and team can help to manage these costs.
The best way to get started on the Design Build process is to meet with Danto Builders to talk about the project, from the vision of the space to the details of how it will be used. If you’re not sure where to begin, or what to focus on first, contact Debbie Danto to get walked through the process.