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A breakdown of the costs of typical commercial real estate development
Hello, and thank you for contacting Wonder for research assistance on U.S. commercial real estate development costs. The primary sources for this research are the 2016 NAIOP report titled, "Economic Impacts of Commercial Real Estate," and a real estate development advisory firm's presentation called "Development Financial Feasibility." I synthesized the data provided by these and the other sources (listed below), and have found the typical cost breakdowns to be approximately as follows:
Design & Planning: 8-10% ; Finance Costs: 5-20%; Construction: 29-33%; Labor: 23-33%; Site Development: 9-13%; Tenant Improvements: 8-19%; Contingency Reserve: 5-10%.
FINDINGS
A detailed summary of my findings are below, including clarification about what is and isn't included in each category. Not all of the sources had the same categories in their breakdown. However, I was able to deduce an approximate amount based on the data they provided and came up with consistent values that should accurately represent the industry.
Finally, I put the most conservative amounts from below into a spreadsheet to give you an example of the data as the pie chart that you could use for your presentation. In case you want to play around with the percentages based on the factors of your specific project, I also included the full ranges for reference and a subtle color change to warn you if you go outside the ranges.
Soft Costs
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- Includes architecture, engineering, legal, marketing, management, and administration.
Hard Costs
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- Includes materials, construction, and management.
- Based on 45-50% of prime construction contracts after construction amount above; the most variable expense over time & geography
- Includes grading, paving, landscaping, roadways, parking, and off-site improvements
- Includes interior design, construction, and finishes, but not furniture or equipment.
CONCLUSION
Thank you again for choosing Wonder for your research needs. I hope you find the data I have provided to be helpful for your presentation. The full breakdown figures and a pie chart are available for you in the linked spreadsheet. If there is anything more we can do to assist you, please let us know!