When budgeting for a commercial development project, keep in mind that costs are typically divided into two categories: hard costs and soft costs.
The importance of a detailed budget to the success of a development project, it’s critical to comprehend some of the specifics of these cost breakdowns. You should be able to identify the anticipated costs of your project and the elements on which your estimates are based. Let’s look at hard vs. soft costs, examples of each, and how to estimate the costs of each.
What do hard costs entail?
These expenses are made up of tangible and quantifiable materials and components of the development project. This category accounts for approximately 70% of your total construction budget. The following are hard costs:
• the building’s shell,
• parking,
• site preparation and landscaping
• more paving, etc.
• HVAC units and maintenance
• cost of technology and security
• electrical components, etc.
• power backup and generation
• and building labor
Variable material and labor costs are among the most important factors influencing hard cost estimates. Furthermore, varying project specifications can make estimating hard costs more difficult. Using historical data, bids, and proposals correctly can help provide better estimates on development projects. It is also critical to account for contingencies to help cover unexpected hard cost changes.
What do soft costs mean?
Soft costs are not directly related to the building’s physical construction. They are made up of various elements related to construction and have a significant impact on the hard costs of a project. Proper design and engineering can help reduce a project’s hard costs.
Soft costs include the following:
• architectural charges
• engineering charges
• Interior design costs
• civil engineering expenses
• fees and permits
• inspection and testing
• Phase 1 environmental study
• project manager costs
• legal expenses
Soft costs can also include ongoing expenses such as building maintenance, insurance, security, and other fees associated with the asset’s upkeep.
Again, historical data, bids, proposals, and the right partners can help provide consistent estimates of a project’s soft costs.
The influence on a project
Whether the costs fall into one of these two categories, establishing a well-planned budget is critical to controlling construction costs. Construction costs impact a tenant’s rental rate and a project’s overall return on investment. It’s always important to have a detailed breakdown of a project’s hard and soft construction costs, as well as an understanding of how they affect its economic viability.
Determining hard and soft costs is difficult, and the accuracy of an estimate can affect whether or not a project is feasible. Finding the right partner assures you that the next construction will be done on time and within budget.
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