Due to the ongoing shortage of skilled labor and resources, the commercial construction industry is facing an uptick in construction rates. The latest global cost analysis reveals that the U.S. is the most expensive country for construction. New York City, San Francisco, Boston, Los Angeles, Chicago and Seattle make it to the top 10 list, according to the survey. It is also expected that total construction costs will increase between 2% and 4% throughout 2024.
Developers and commercial property owners face challenges such as maintaining cash flow and securing funding during large building projects. To manage cash flow effectively, construction companies should control costs by reducing the commercial building costs per square foot.
In this article, learn about the commercial construction cost per square foot in the United States, the factors affecting the cost, as well as the breakdown of construction costs by region and type of building. Additionally, discover how to calculate the total costs of a building project and expert tips on saving money.
Let’s begin!
What is the Construction Cost Per Square Foot? Why is it Important?
The cost per square foot factor is one of the most important metrics to consider for proper budgeting and financial planning of the commercial construction project. Contractors must accurately forecast finances and monitor any variations in construction cost per square foot. This helps replenish their cash resources and maintain a healthy profit level upon project completion.
Understanding the construction costs per square foot rate is paramount for commercial contractors as it governs the entire project.
The average cost per square foot for constructing various commercial projects in the US can vary greatly depending on factors such as location, materials, and the project’s nature. From commercial office buildings to supermarkets, educational institutions to sports stadiums, hotels to entertainment centers, and multi-family apartments to parking lots, each commercial project type has unique financial considerations.
Moreover, the project’s construction costs per square foot vary widely in different areas of the country and the type of commercial construction activity undertaken.
The Factors That Affect Commercial Construction Costs
The construction costs of a real estate development project are impacted by numerous variables from the design stage to completion. Factors like location, building type, required finishes, and project phase all influence the overall spending and cost per square foot of commercial construction. Let’s further understand each of the factors.
Location of the Commercial Construction
The building’s location has a heavy impact on the project’s overall budget as some areas are more expensive to build in than others. For instance, in the United States of America, a fully crowded city like New York City will be costlier to build a commercial building than in a rural mid-western town. Ensure that you calculate the average commercial construction costs per square foot for your specific zip code.
Remember that increased fees of labor, regional climate, precedents set by local buildings, and other hidden factors may also add to the variation in the construction cost depending on the project’s location.
Building Type, Size and Quality
The type of commercial building you are constructing greatly impacts the project’s overall spending with an increased cost per square foot. The construction costs for building a high-rise office building will be more than that of building a single-story manufacturing facility due to the higher expenses for engineering planning, site preparation, and obtaining permits and inspections.
Similarly, commercial construction costs increase with building size and type, as more materials need transportation to the site. Quality standards of your company’s facility also play a significant role. The category ‘Class A’ being the most expensive to build, with top-notch amenities, fixtures, and mechanical systems. Whereas, ‘Class B’ and ‘Class C’ facilities offering moderate-level amenities and fixtures are more affordable to construct.
Foundation and Site Preparation
As commercial properties are built on vast proportions of land, their foundations typically consume huge amounts of figures and structural materials like concrete, rebar, etc. The National Association of Home Builders estimates that the price of constructing a foundation takes up to 11.3% of the total budget.
Besides, the sum associated with the site preparation tasks including excavation, grading, concrete fills, backfills, and utilities scale up the commercial construction cost.
Building Materials
The building materials significantly impact commercial construction costs due to sourcing and transportation expenses. The type of material you select influences the total budget and the commercial construction cost per square foot.
If you are constructing a steel structure with extensive fabrication and other related features, it will not be affordable to construct, especially when going for a-built windows, doors, other features, and equipment.
Level of Finishes
The type of finishes required in the project will have a big impact on the construction cost and overall budget.
Before arriving at the sq.ft. cost of the building project, you must know that the $200 per square foot cost of a 3-star hotel will go up to $300 to $350 per square foot in the case of a five-star hotel, and this price increase is due to the type of finish needed in the project.
So, the high-end finishes will raise the commercial building’s cost of construction per square foot rate compared to basic or medium-grade finishing options.
Utility Costs
A building’s vital systems including heating, ventilation, air conditioning, cooling (HVAC), electrical fixtures, and plumbing installations make up for its utility costs. Although these system expenses depend on the scope and complexity of the project, commercial HVAC costs per square foot for a new office building using a 2-pipe system may be from $20 to $28. While the average cost for plumbing services is $4 to $6 per square foot
The commercial electrical cost per square foot ranges between $2 to $15, which is 10-20% higher than residential electrical wiring. Overall, the utility costs occupy around 13% of the total construction budget in a commercial building project.
Labor cost
Labor expenditure will depend on the type and quality of labor required in a real estate development project. Generally, labor expenses cover about 20% to 40% of your total construction costs. Due to the necessity for involving a large labor force, commercial contractors must consider the level of labor availability, the type of labor required for the project, and the customs prevailing in the local labor market.
The existence of labor unions also will decide on the construction cost per square foot; wherever the labor unions are active, the labor cost increases, thereby making the price per sq. ft. go up significantly.
According to the Forbes 2024 statistics,
- An electrician charges $50 to $150 per hour
- An architect charges between $100 to $250 per hour
- Fees to hire a structural engineer range from $100 to $350 an hour
- Plumbing cost per hour is between $45 to $200
Permits and Legal Work
Passing necessary inspections and obtaining building permits is necessary before starting commercial building projects. Permitting fees and regulatory compliances vary from region to region, so make sure you check the local laws and regulations beforehand.
Building permits cost between 0.5% and 3% of the total construction budget, depending on the size and complexity of the project. Don’t forget to allot a contingency fund for the management of taxes, insurance, contracts, and legal fees in your construction costs.
Commercial Construction Cost Breakdown by Region
To arrive at the overall cost and the square foot cost of new construction in various regions of the country, you must consider the commercial construction cost per square foot by zip code to find out the average cost of building projects.
The average construction cost per square foot of new commercial structures in different regions of the country in the US.
Let us consider Cummins’s US Construction Per Square Foot Data to get the breakdown of commercial construction costs per sq. ft. in different regions of the United States of America.
Commercial Construction Costs Per Square Foot in the Eastern US
To calculate the commercial cost per sq. ft. in the Eastern region of the US, the cities of New York, Boston, Washington DC, and Philadelphia area were taken into account.
The average construction cost per square foot cost for a high-end, single-story office building was found to be $361, but in the case of a low-end construction, the average cost comes to $301 per sq. ft. In the case of a mid-rise building, it was $719 and $599 for high-end and low-end construction, respectively.
For high-rise buildings, the average cost of a high-end facility stands at $827, while for a low-end facility, it is found to be $688 per sq. ft.
Commercial construction like a Supermarket or a Mall with high-end finishes, the cost is $371 while it is $309 for low-end finishes. If you are constructing a regional Mall; an amount of 554 is the cost per sq. ft. in case of a top-end construction and $461 if the construction is of a lower grade.
Likewise, in the case of 3-star hotel construction, the average commercial construction cost per square foot is $604 and $489 for high-end and low-end, respectively. On the other hand, if the commercial construction is a five-star hotel, the average cost stands at $871 per square foot for a higher-end and $677 for a low-end finishing.
In the case of a commercial project for a school or university building, the average cost per sq. ft. is $381 and $317 for a high-end construction and a corresponding low-end version.
The Cost Per Square Foot For Commercial Projects In the Western US
To calculate the commercial cost per sq. ft. in the Western parts of the United States, the construction data sourced from the cities of San Francisco, Los Angeles, San Diego, Sacramento, Las Vegas, Seattle, Portland, and Honolulu were used for arriving at the average cost per sq. ft.
For a single-story office building, the averages stand at $378 and $313 per sq. ft. for high and low-end projects and the same per sq. ft. cost for mid-rise commercial buildings standard $607 and $481. But if it is a high-rise building, then the cost rises to $730 for high-end and $557 per sq. ft. for low-end construction.
For a project for the development of a neighborhood strip mall, we have the range of building costs per sq. ft. at $430 and $261 for high and low-end work. The figures for the construction of a regional mall are $575 and $400 per sq. ft.
For the development of a 3-star hotel as a commercial project, $545 and $402 are the average per sq. ft. costs in case of high and low-range construction. At the same time, when the commercial construction is done for a 5-star hotel, the averages are $849 and $577.
If the development project is for the construction of a school building, the cost per sq. ft. is $341, while a high-end institution created for the same purpose stands at $417.
The Cost Per Square Foot For Commercial Projects In the US Midwest
To calculate the average cost per square foot of Midwest commercial construction projects, the development cost prevailing in Denver, Chicago, and Nashville was taken into account.
The construction cost per square foot of a new single-story non-residential building in US Midwest cities was found to be $237 for a low-end finished building, while it is $298 per sq. ft. when the finishes are high-end.
In the case of a mid-rise building, the figures are $556 per sq. ft. and $454 per sq. ft. for a low-end construction. If commercial construction is for developing high-rise buildings, the values jump to $689 and $554 per sq. ft.
The average cost per square foot rate for a high-end construction of a neighborhood strip Mall is $340, and the construction of a low end stands at $284. For the regional mall, the respective figures are $507 and $423.
When you want to build a facility for the hospitality industry, such as a 3-star hotel, the cost per sq. ft. is $400 to $533, while it is $537 to $762 for a 5-star hotel.
At the same time, for the construction of a school building, the average commercial construction cost is $292 per sq. ft., while the same is $242 for low-end construction.
The Cost Per Square Foot In The Southern US For Commercial Buildings
The data from the cities of Dallas, Atlanta, and Orlando were taken to calculate the cost of construction per square foot in commercial buildings.
In the southern US for constructing a single-story office building, the averages are $238 and $286 per sq. ft. for low-end and high-end construction respectively. If it is a mid-rise building, the figures rise to $569, and $474 is the average cost per sq. ft. In the case of a high-rise building the price per sq. ft. of a low-end construction is $545 while the same for a high-end is priced at $654.
$245 to $294 per sq. ft. is the average range of cost per sq. ft. for construction of a strip mall in the southern regions of the United States while the cost of a regional mall has risen to $439 for a high-end construction while the same for low-end construction stands at $366.
If the project is for constructing a 3-star hotel, the average fee per sq. ft. is $341 to $478 per sq. ft. depending upon the quality of construction. Likewise, for a five-star hotel, the price per sq. ft. stands at $462 and $683, depending upon the level of finish and quality.
In the case of the development of school buildings, $260 to $217 per sq. ft. is the range of average price per foot construction for this type of commercial building.
Cost Per Sq. Foot in Different Regions of the USA
Amounts in $
| Eastern US | Western US | Midwest US | Southern US | |||||
|---|---|---|---|---|---|---|---|---|
| High End | Low End | High End | Low End | High End | Low End | High End | Low End | |
| Single Story Office | 361 | 301 | 378 | 313 | 298 | 237 | 286 | 238 |
| Mid- rise builidng | 719 | 599 | 607 | 481 | 556 | 454 | 569 | 474 |
| High Rise Building | 827 | 688 | 730 | 557 | 689 | 584 | 654 | 545 |
| Super Market | 371 | 309 | 430 | 261 | 340 | 284 | 294 | 245 |
| Regional Mall | 554 | 461 | 575 | 400 | 507 | 423 | 439 | 366 |
| 3- Star Hotel | 604 | 489 | 545 | 400 | 533 | 400 | 478 | 341 |
| 5- Star Hotel | 871 | 677 | 849 | 577 | 762 | 537 | 683 | 462 |
| Schools | 381 | 317 | 341 | 417 | 292 | 242 | 260 | 217 |
The Cost Per Square Foot Of Commercial Building As Per The Type Of Building Constructed
The cost per square foot in the commercial construction industry varies widely as per the type of building constructed. We are giving the cost per square foot of the construction of commercial buildings as per building type across the US as a whole.
Office space
For building a single-story commercial office space, the cost per square foot stands at $ 313 while the same for a mid-rise office building is $562, and for the construction of a high-rise building, the cost per square foot stands at $660.
For the construction of a commercial building for the hospitality industry, like a three-star hotel, the average commercial construction cost per square foot is $478, while the same for a 5-star hotel stands at $691 per square foot.
Factories And Warehouses
The price per sq. ft. for industrial building construction is $214, and in the case of a light industrial warehouse, the cost rises to $238. If the development is for laboratory buildings, the price becomes more expensive and is $635 per sq. ft.
Healthcare Facilities
If the development is for healthcare facilities, the charges are higher than other types of real estate projects. Health care is always a big business and for these new facilities, more elaborate finishing is necessary. For this type of building, in the case of the development of an acute care facility, the average cost per sq. ft. is $888, and for a medical office building, the charges come down to $498 per sq. ft. It is $619 per sq. ft. in case of commercial construction undertaken for a specialty clinic.
Educational Institutions
If commercial construction is undertaken for providing buildings to schools and Universities, the average cost stands at $327 per sq. ft. If the development is for a primary or Secondary School, the averages stand at $295, $325, and $359 per sq. ft.
Constructing higher education institutions is a bit pricier than other school buildings. For building standard classroom buildings, the cost of construction per square foot stands at $580, while laboratory buildings require an amount of $756 per sq. ft. In the case of an American University admin building, the cost for an office building is $596 per sq. ft., and dormitories are the least expensive and can be completed within $322 per sq. ft.
Hospitality and Lodging Facilities
Hotels and lodging facilities come in different types, locations, and construction modes that can determine final project spending. In the US, a motel consisting of 2 to 3 storeys and basic amenities has an average construction cost per sq. ft. of $160. When it comes to average sq. ft. values of varying star hotel ratings, a 3-star hotel will take up to $282, a 4-star hotel will cost approximately 335, and the price for a luxurious 5-star hotel can reach up to $441.
Public and Community Facilities
This type of facility requires high commercial construction costs, and for building entertainment and Recreation centers, the price stands at $403 per sq. ft., and police stations can be built at $580 per sq. ft. According to Statista, the average retail store construction cost per square foot in the United States ranges from $190 (Denver) to $473 (New York). The government administration buildings require an amount of $591 which is the average costs per sq. ft. of the building constructed.
Among all these, the most expensive commercial structures are the museums and performing arts centers. These particular types of buildings are constructed at an average costs of $892 per sq. ft.
Parking Structures
Commercial projects like parking structures can be built at a relatively lesser budget than other types of commercial buildings. The low-grade multi-level parking structure car parking costs around $143 per sq. ft. to build, while the multilevel parking structure can be completed at an economical price of $70 per sq. ft. We can say that parking structures are the cheapest commercial building to build.
Like this, the construction costs per square foot for new commercial structures vary with various regions in the country as well as the type of commercial building constructed.
Construction Cost Per Square Foot By Building Type
| Building Type | Sub-Type | Construction Cost Per Square Foot (USD) |
|---|---|---|
| Office Building | Single-story commercial office | $313 |
| Mid-rise office building | $562 | |
| High-rise office building | $660 | |
| Hospitality and Lodging Facilities | Motel (2-3 stories, basic amenities) | $160 |
| 3-star hotel | $478 | |
| 5-star hotel | $691 | |
| Factories and Warehouses | Industrial building | $214 |
| Light industrial warehouse | $238 | |
| Laboratory facility | $635 | |
| Healthcare Facilities | Acute care facility | $888 |
| Medical office building | $498 | |
| Specialty clinic | $619 | |
| Educational Institutions | University classroom or laboratory building | $580-$756 |
| University dormitories | $322 | |
| Primary or secondary school (average) | $295-359 | |
| Public and Community Facilities | Entertainment and recreation centers | $403 |
| Police station | $580 | |
| Retail store (varies by state) | $190-$473 | |
| Museums and performing arts centres | $892 | |
| Parking Structures | Low-grade multi-level parking | $143 |
| Multi-level parking structure | $70 |
How to Estimate Construction Costs?
Construction cost per square foot plays an influential role in shaping the overall project cost. To estimate the total construction costs of a commercial building project, it is necessary to take into account various determining factors such as:
- Size, type, and quality of the building
- Design and architectural complexity
- Construction materials
- Labor costs
- Building codes, permits, and regulations
- Mechanical and electrical systems
- Level of finishes
- Geographical location
Firstly, identify the building class, whether it will be a Class A, Class B, or Class C commercial space. Class A is the premium properties while Class C is the most budget-friendly. Next, calculate the floor area depending on the design and architectural complexity. Multiply the commercial construction costs per square foot with your total floor area to know the total expenses.
At this point, you will add the labor and material costs to the previously estimated costs. Commercial building permit fees, cost of interior finishes, HCAC, and electrical systems are other important parts of the overall construction cost estimation.
To develop accurate cost estimates for your commercial construction project, work with a general contractor, architect, and engineer to arrive at your exact cost per square foot. Request quotes from at least three to four local contractors. Otherwise, hire a professional construction cost estimator expert to calculate expenses for large-scale building projects.
7 Tips on Reducing Your Construction Costs
Here are some expert tips to save money on commercial construction projects.
Tip 1 – Practice Value Engineering
Value engineering focuses on improving the functionality of goods and services while reducing their costs. For example, substituting steel reinforcement with fibre-reinforced polymer (FRP) materials, maintaining or enhancing structural performance while minimizing costs. Start working early with your contractor, designer, and engineer to value engineer the project effectively.
Tip 2 – Rent Less-Utilized Equipment
Know when to purchase or rent equipment. Prefer renting less-utilized equipment during the project to save money. Instead of purchasing entirely new equipment for one construction project, rent quality equipment from a trustworthy rental company or supplier.
Tip 3 – Order in Bulk
Often, material suppliers provide discounts when purchasing bulk quantities of orders. To reduce construction costs, general contractors can make a bulk purchase of all required materials at the beginning of the project.
Tip 4 – Plan the Project Extensively
Get on board the project stakeholders early so that everyone remains on the same page. With careful planning, develop a realistic construction schedule for the team to follow and manage the procurement process to avoid costly delays. Ensure a steady cash flow for financing the construction. Revising the project plan when needed helps save commercial construction costs.
Tip 5 – Select Design-Build Project Delivery
A design-build project delivery method unifies both the design and construction process into a single contract which helps streamline the entire project. Streamlining construction processes with a design-build contractor ensures project efficiency, reducing construction costs and delays.
Tip 6 – Follow Sustainable Building Practices
While they require high upfront investment, sustainable building practices can save significant costs in the future. Use durable, recycled materials that will need minimal maintenance. Also, consider installing energy-efficient systems to reduce the long-term operational costs of the building. Prefabricated panels, bamboo, reclaimed wood, brick, and recycled bottles are some of the most affordable sustainable materials to build a commercial project.
Tip 7 – Use Prefabrication or Modular Construction
Using lean construction practices such as preordering supplies for on-time delivery, prefabrication, and modular construction can reduce construction time, labor costs, and optimize resource use. Prefabricated construction, especially, takes less construction cost and time than on-site construction.
Conclusion
While planning and budgeting for commercial construction, take care of various factors that influence the project’s construction cost per square foot price and arrive at the real building costs per square foot of commercial facilities in the United States.
Plan the project properly to maintain a healthy cash flow during the project work and avoid putting the contractor under tremendous pressure while executing the project. To overcome the challenges faced at each stage of the project, before the contractors get a significant amount from the project owner, they have to deploy large amounts of cash during the project’s initial stages.
FAQs
What is the average cost per square foot for commercial buildings in California?
The average per-square-foot price of commercial construction in California ranges between $200 to $400.
How can I get an accurate estimation for my project?
It is recommended to request a professional commercial contractor or firm to provide you with an estimated construction budget for a project. Alternatively, you can use online construction cost calculators for estimates.
What are the additional factors to consider while calculating building expenses?
Land acquisition, financing, professional fees of hiring general contractors and subcontractors, design, engineering work, overhead costs, contingency funds, etc. are some of the additional factors present in construction costs.
Relevant Resources:
- Construction Budgeting: How To Stay on Track and Under Budget
- What is White Box Construction? Meaning, Benefits, Costs, & More
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