In today’s fierce real estate market, business owners and organizations alike must develop commercial constructions with a unique aesthetic and functional appeal to stand out and secure profitable investments. Whether looking to start your ground-up construction project or renovate an existing space, this definitive guide is your go-to resource for navigating the complex world of commercial construction.
Acquaint yourself with the various commercial construction industries, project types, key stakeholders involved, financial considerations, and the journey from project initiation to completion.
Let’s start!
What is Commercial Construction?
Commercial construction refers to the process of planning, designing, and building commercial-use structures like offices, retail stores, hotels, restaurants, recreational centers, medical facilities, warehouses, etc.
Business owners and property developers hire commercial general contractors, architects, and engineers. They plan the entire commercial construction project according to the client’s specifications and site dimensions while adhering to relevant regulations. After this is completed, the construction team starts the actual building process using heavy equipment and materials.
Essentially, commercial building projects are a result of various elements coming together in absolute collaboration and coordination. Commercial projects typically include renovation, remodeling, tenant improvement, ground-up construction, and many others.
The size of the commercial construction market in the United States is projected to grow from USD 171.26 billion in 2024 to USD 203.5 billion by 2029. This represents an annual growth rate of 3.51% over the five-year forecast period.
What is the Purpose of Commercial Construction?
Once commercial construction projects transform into reality, they provide business clients with the following valuable benefits:
- Functional space for businesses to operate
- Customization in the overall design
- Attracts more customers by increasing visibility
- Positively affects brand image
- Enhances property resale value
- A good investment for clients that can bring rental income from tenants
- Tax deductions
Commercial, the largest subcategory of nonresidential construction with 21%, has multiplied since 2020. There is a rise in employment, both for laborers and specialty trade workers. Despite pandemic restrictions and global inflation, commercial real estate generated an annual revenue of $2.3 trillion for the U.S. economy in 2022.
In the following year, the US construction spending amounted to $128 billion in July, marking an 11% annual revenue rise from the previous year. Such a boost in spending represents a growing demand for building and investing in commercial spaces of all types and sizes.
Let’s explore some of the major levels of commercial building projects.
Levels of Commercial Construction
Depending on the scale of businesses, commercial building projects vary, for example, from small cafes to mid-sized office buildings, and large skyscrapers. Hence, the three levels of commercial real estate projects are small-scale, medium-scale, and large-scale construction.
Small-scale Construction
Small-scale commercial projects focus on rebranding or changing the look of the structure. That means renovation, redesign, expansions, and structure repairs fall under this level. Small-scale commercial construction requires a minimum budget, time, and crew from the general contractor’s team. Small-scale buildings are under 500 square feet and are also known as light commercial construction.
Examples of Small-scale Projects:
- Applying a fresh coat of paint, installing new floors, HVAC (heating, cooling, and air conditioning) systems, or technology
Renovation of business spaces, for example, shops, offices, hotel rooms, gyms, etc. - “The Studio” in Vermont, USA, is a timber-framed building surrounded by pine trees. It offers a unique spatial experience, balancing nature and architecture. The place serves as a retreat for writers and artists, replacing an old cabin now used as a bathhouse.
Medium-scale Construction
Sometimes, existing commercial structures need more than just a facelift. Medium-scale construction is suitable for those business owners who want to restructure, remodel, or expand their spaces with additions. Generally, medium-scale projects ranging from 500 to 50,000 square feet, take months to finish, have larger budgets, and are more complex than their small-scale counterparts.
Examples of Medium-scale Projects:
- Ground-up construction of mid-sized buildings, for example, medical clinics, hotels, warehouses, educational centers, etc.
Addition of a new wing in an office structure - Amway Center, Orlando, Florida is an indoor sports and entertainment complex that hosts NBC basketball games, concerts, and other events. The commercial building project costs around $652 million.
Large-scale Construction
Ground-up construction of structures over 50,000 square feet is known as large-scale construction. The owner will purchase land where the builders construct an entirely new building following the owner’s vision. These mega projects are usually funded by commercial development firms and government agencies. Since the contracting team erects a new building from scratch, large-scale commercial construction projects require a lot of planning, heavy specialized equipment, and several years for completion.
Examples of Large-scale Projects:
- Construction of mega structures like skyscrapers, airports, government buildings, highways, hotels, etc.
- 270 Park Avenue is a 2.5 million square feet mega project in New York City. It will be the second-tallest building on the Manhattan skyline, only after the One World Trade Center. The total cost of the project is reportedly $1.5 billion.
8 Types of Commercial Construction Projects
You will find a diverse range of commercial building projects, depending on factors such as the type of building, its intended use, and its unique requirements. Identifying where your project fits will help you hire the right commercial building contractor that specializes in your type of work.
Here are the common types of commercial construction projects:
1. Restaurants and Food Service
When it comes to restaurant construction, the project needs to comply with essential food storage laws, food handling practices, and electrical systems within the kitchen area. For example, there must be proper labeling of food, a working thermometer, and refrigeration must be below 40 degrees Fahrenheit.
There should be fire detection and suppression systems, and exit signs in both the front of the house and back of the house. All restaurant contractors have to follow strict guidelines set by OSHA and FDA.
2. Medical Facilities
Sanitization is a top priority in medical construction. There must be a 24/7 power supply, safe storage for life-saving equipment, and proper ventilation to remove pathogens and contaminants. Medical spaces should be designed soundproof under HIPAA regulations. Overall, medical spaces should be easily navigable with fire protection systems in place.
3. Office Buildings
Any office building runs primarily on information technology and management. While constructing office spaces, contractors plan rooms keeping in mind the safety of utilizes like servers and computer equipment. They ensure networking lines are operating throughout the office without barriers, providing high-speed connectivity between various digital devices.
4. Retail, Grocery Stores, and Shopping Malls
Businesses drive sales through customer visits to grocery stores, shopping malls, or retail shops. That is why construction companies face the challenge of designing an attractive layout that promotes fluid movement of traffic. When working on retail flagship stores, they need to implement branding and consistency.
5. Industrial Buildings
For accommodating heavy manufacturing and logistics equipment, industrial facilities are built by a specialized team of construction professionals. Whether it’s installing load docks, temperature regulation for processing, or handling hazardous materials, industrial contractors have to follow stringent rules for construction safety. The ceiling height requirements of industrial facilities should also be followed without a miss.
6. Hotels and Lodging Facilities
Building hotels and other lodging facilities involves designing rooms of different sizes, soundproofing for privacy, and building fire exits. Commercial contractors plan hotels or motels for long-term durability. Moreover, equal distribution of power and water systems to each room is important. The goal of this commercial project is to treat guests with luxury and utmost comfort.
7. Institutional Buildings
Schools, universities, large-scale hospitals, and care facilities are part of institutional buildings. Construction of educational institutions entails building classrooms, staff offices, canteen, sports zones, and dorm facilities. On the other hand, hospital campuses require accessibility for ambulances, loading docks for equipment, and restaurant service for visitors and employees.
8. Sports Facilities
Management of large crowds occupying sports facilities like professional football stadiums or tennis courts is what builders consider during construction projects. Sports buildings require adequate seating arrangements for spectators with refreshments and sanitary facilities. If building a fitness center, there should be open space to support heavy athletic machinery.
Key Stakeholders in Commercial Construction Projects
Construction projects involve individuals and organizations with a vested interest in the project’s quality and success, known as stakeholders. Here are the key stakeholders and their responsibilities in a commercial build project:
Client: The owner or developer who funds and commissions the project. They have a specific vision or goal in mind for the project.
Architects/Designers and Engineers: Architects and engineers are responsible for the project’s design, layout, and planning, ensuring it meets the client’s requirements, complies with regulations, and is structurally sound. These professionals work closely with their clients to actualize their vision.
Commercial General Contractor: The main commercial construction company hired to oversee and implement the building project. They procure materials from vendors, hire subcontractors, coordinate tasks to labor, and manage the entire construction process.
Subcontractors: Specialty trade contractors hired for construction tasks such as electrical, mechanical, plumbing, HVAC, landscaping, or other structural work.
Project Manager: A construction manager supervises the day-to-day operations of the project and coordinates with various stakeholders involved. They manage all aspects of the project and make sure it stays on schedule and within budget.
Government Authorities and Inspectors: These are regulatory bodies and building inspectors who examine whether the project complies with local codes, construction safety standards, and permits. They are present during the construction process, conduct inspections, and issue permits and licenses necessary to complete the project.
Commercial Tenants: In commercial real estate industry, businesses and organizations are the tenants that will occupy the built structure.
Difference Between Commercial Construction and Other Kinds of Construction
Explore how commercial construction is different from residential, industrial, and civil construction types.
Difference Between Commercial and Residential Construction
- Residential construction involves single or multi-family homes while commercial property construction involves larger buildings, for example, office properties, retail stores, hospitals, factories, etc.
- Housing units serve families while commercial buildings serve businesses or industrial companies.
- The cost of residential construction is less expensive than commercial due to smaller amounts of materials, specialized equipment (cranes, loaders, bulldozers, pavers), and labor.
- Housing projects take a few weeks or months to finish and are less complex. Commercial projects are time-consuming and have an extensive scope of work.
- The construction site is typically smaller for residential projects than commercial ones. There are no strict regulations to be followed, unlike the commercial sector.
Difference Between Commercial and Industrial Construction
- Industrial construction typically refers to building factories, manufacturing units, power plants, refineries, warehouses, and more that support industrial operations.
- As they accommodate heavy machinery, specialized processes, and large-scale production of goods or services, the industrial building design focuses on logistics and efficiency. Commercial structures facilitate internal movement to allow the flow of crowds.
- Owners select the location for commercial buildings keeping in mind their target audience; a restaurant will be located in a high foot traffic area. Whereas, industrial facilities are generally near highways or ports for 24/7 shipping and receiving.
- Mechanical, Electrical, and Plumbing (MEP) systems of commercial structures are relatively simple. Industrial construction has advanced MEP, specialized HVAC, wastewater treatment, and fire suppression systems.
- It requires expert project management skills, on-site assembly, fabrication, and installation. Commercial building projects are streamlined.
- Commercial building projects acquire permits mainly for occupant safety. Industrial construction projects need to comply with more stringent standards and environmental regulations.
Difference Between Commercial and Civil Construction
- Civil construction falls under civil engineering which deals with the planning, designing, and building of government-funded public infrastructure like roads, bridges, tunnels, dams, airports, railways, and others. Commercial projects include the development of business spaces.
- Aesthetics plays a major role in commercial buildings. Their floor plans ensure smooth movement of foot traffic. Civil construction prioritizes coordination and development of general infrastructure within minimum time and resources.
- Commercial infrastructure involves electrical, HVAC, plumbing, and other systems to facilitate tenant’s requirements. On the other hand, civil construction supports heavy equipment for project management, minimizing community disruptions.
- Business owners and investors fund commercial projects while civil construction projects are sponsored by the government.
Cost of Commercial Construction (Per Square Foot)
Most commercial construction projects need a high amount of budget, so, it is essential to have an accurate cost estimate from your general contractor. The total construction costs can be broken into hard costs, soft costs, vendor costs, and operational costs. The cost per square foot of a commercial building construction project depends on various factors such as –
- Location of the property
- Building type, size, and complexity
- Foundation and site preparation
- Labor and material costs
- Building permits and regulatory compliance
- Quality of finishes and fixtures
- Utility costs
- Professional fees of designers, contractors, engineers, etc.
The overall price of any building project in the United States hugely varies from region to region. Hence, researching commercial construction cost per square foot by zip code is a must.
For example, the cost per square foot to build a low-end supermarket in the eastern US is $309, while it is $261 in the Western US, $284 in the Midwest US, and $245 in the Southern US.
Commercial Construction Cost Per Square Foot Based on the Building Type:
Discuss your project with experienced contractors or architects who have deep knowledge about local prices. Do not go ahead with the lowest bidder, instead prefer someone with comprehensive bids. It is also recommended to hire your commercial contractor early in the process and tell them what is financially feasible.
Read more on Commercial Construction Cost Per Square Foot in the U.S.
Commercial Construction Financing
Whether undergoing a commercial building project for your company or running a construction business, securing financing is paramount for future success.
Most businesses don’t have enough cash reserves to fund their projects, and investing all of the capital at once isn’t a wise strategy. According to the Federal Reserve Banks’ Small Business Credit Survey, a staggering 59% of small businesses reported being in fair or poor financial condition. From purchasing heavy equipment, and managing labor costs, to dealing with uneven cash flow, financial planning is essential for the smooth execution and success of the future construction project.
Fortunately, there are numerous construction financing options available, such as –
- Commercial Construction Loan
- Commercial Mortgage Financing
- Commercial Bridge Financing
Understand each one of them to determine which form of business funding will work best for you.
Commercial Construction Loan
This is the most common financing option among business owners. Commercial construction loans are specifically designed for financing the construction or renovation of a building and are generally offered by banks, credit unions, or private lenders.
For example; SBA 504/CDC loans are for the purchase and renovation of fixed assets like properties while SBA 7(a) loans are used for working capital, land purchase, and construction of commercial real estate.
Commercial construction loans are similar to a business line of credit where the lender releases loan funds incrementally as per “draw schedule”, meaning you will only pay interest on drawn amounts. After project completion, either pay the principal in one lump sum or borrow a commercial mortgage for easier monthly payments.
Know in detail about Commercial Construction Loans: The Ultimate Guide.
Commercial Mortgage Financing
A commercial mortgage is another construction financing option granted for real estate development or renovation. A bank will provide a loan with a fixed interest rate and repayment schedule which you must repay before reclaiming your finished building from the contractor.
It’s better if you have collateral worth twice the loan amount as lenders require additional compensation for approving the commercial mortgage. Banks, traditional financial institutions, insurance companies, and large pension funds offer commercial mortgages.
Commercial Bridge Financing
Commercial bridge loans provide borrowers with a fixed amount of funding upfront for a limited period, effectively “bridging” the gap as they transition to a long-term financial solution. Bridge financing is typically used for small-scale building projects like retail stores or eateries.
This option of commercial project financing comes with a higher interest rate as funds are available for a limited period. They are secured against collateral — usually, the real estate to be bought or renovated. Commercial bridge loans can be issued by banks, online lenders, or private lenders as well.
Note – As a lender, your company must fulfill vital requirements – a high personal and business credit score, debt service coverage ratio (DSCR), stable financial records, and collateral to get a loan approved.
How Does Construction Bidding Work?
Construction bidding is where multiple interested commercial contractors submit a tender or proposal to win a construction contract. This proposal includes building plans, blueprints, budgets, material prices, and schedules which the contractor sends to clients as their final price or “bid” for undertaking the project.
Through a Request for Proposal (RFP) or Invitation for Bid (IFB), the client issues a letter known as a “construction bid package”, that contractors review and start developing proposals to win the contract. A comprehensive bid package includes project specifications, drawings, contracts, bonds, bid forms, and other information necessary for contractors to submit accurate bids.
Contractors can download free printable construction bid templates online or access them on construction bidding software like Autodesk, Planhub, Buildertrend, and Procore.
For selecting the right bid, project owners evaluate contractors’ experience, safety records, subcontractors’ resumes, schedules, and cost breakdowns. Finally, the owner compares the similarities and differences between different commercial contractors and awards the project to the suitable candidate.
Commercial Building Construction Process (From Start to Finish)
Step 1: Planning and Development
As the first step of commercial building construction, planning and development sets the foundation for the rest of the project. From finding the right location for your business to developing an initial budget, you will make some crucial decisions in this phase.
This is where you need to hire a commercial general contractor so that they can understand your vision and provide cost estimates. Hiring a design-build contractor would streamline the architect and general contractor services.
Step 2: Design
At the design stage, architects will create schematic drawings showcasing the space, materials, colors, and textures. They will show 3D renders to give owners a preview of the finished structure.
Engineers verify if the plans for internal structures like HVAC, plumbing, electrical, and external structures like neighboring connections and parking areas are structurally sound. In the design development stage, owners can also make adjustments and give their approval to the final design.
Step 3 – Construction Bidding
Once the final detailed drawings and specifications are developed, they are incorporated into contractual documents that construction companies or bidders use to bid on the job. Construction bidding is when you hire the main contractor for your commercial project.
A construction tender is publicized to receive price quotes from multiple commercial builders. After doing proper due diligence and interviewing every bidder, you will finalize a reputable commercial contractor.
Step 4: Preconstruction
As soon as your construction contractor is in place, pre-construction activities will begin. The commercial general contractor along with their team will conduct a site inspection to test the soil conditions. They will submit project plans to the local authorities to obtain building permits and get commercial construction insurance for your project.
During the preconstruction stage, building contractors assign various roles on-site such as:
- Project Manager (Not applicable if the general contractor is also the project manager)
- Superintendent
- Contract Administrator and
- Field Engineer
The procurement process happens at the preconstruction stage when commercial contractors send out “purchase orders” to vendors and subcontractors. Purchase orders ensure materials arrive according to exact specifications and quantities. Subcontractors are specialty tradesmen who will offer quotes for specific services.
Step 5: Construction
Every preparation undertaken during the initial stages comes to fruition during the construction process. The dedicated construction project manager and general contractor will handle everything from inception to completion of the construction process.
The majority of the construction phase will involve site preparation activities, for example –
- Removing existing structures or vegetation
- Excavating the ground
- Implementing proper drainage systems
- Installation of power, water, and disposal utilities
- Building temporary facilities for material and equipment storage
The construction project team will next lay a foundation followed by concrete pouring, structural work, framing, roofing, and interior finishing. An official inspector performs quality control inspections throughout the process for necessary modifications and revisions. Construction is the most time-consuming step of the whole project.
Step 6: Post-Construction
When the project is almost complete or ready, you will conduct a walk-through site inspection alongside your commercial general contractor. A punch list will be created to mention the last leg of tasks that need to be modified or corrected. Once again a final inspection is done, and your commercial building will be issued a “certificate of occupancy” from the local advisory board.
The project closeout stage won’t be over until assets are deactivated, waste management is ensured, and building equipment is returned by the commercial construction company.
Hiring Commercial Construction Companies: Top Services
Prefer to hire a local commercial contractor for your construction and renovation projects as they are knowledgeable about local building codes, regulations, and suppliers. Search online “commercial construction companies near me” and research their official websites to browse their portfolios.
Verify if the building contractor is licensed, insured, and bonded. Reputable contractors will have positive reviews, ratings, and client references. Look for an experienced company with the broadest range of commercial building services.
Below are some of the essential commercial construction services offered by most builders:
- General Contracting Services
- Pre- and Post-construction Services
- Construction Management
- Ground Up Construction
- Tenant Improvements, Renovations, and Remodels
- Design-build Services
- Seismic Retrofit Services
- Facility Maintenance Services
Make sure you get everything in a written contract with your commercial general contractor. Ensure the contract clearly defines the scope of work, schedules, cost breakdown, payment terms, and other important clauses before you finally sign the dotted line.
Commercial Construction Project Case Study
ThredUP Tenant Improvement – Oakland
See more pictures here.
Project Brief –
ThredUP is a tenant improvement project for their Oakland office space to create a vibrant, collaborative, and sustainable workspace. The project’s goal was to improve the overall aesthetic and functionality of the office, build collaborative workspaces for employees, and restore the historical building’s design elements and integrity.
Solutions GC was hired as the commercial contracting company for this tenant improvement project.
Project Execution –
- Solutions GC built new conference rooms, phone rooms, and incorporated an open floor plan to promote employee collaboration. Opening the floor plan also helped natural light to circulate throughout the building.
- The team restored the office’s original hardwood pine floors and stairs.
- The office kitchen and dining area were renovated with blue accents. We constructed the exterior patio roof, installed new lighting, and used weather-resistant furniture to ensure year-round usability.
- The building systems were updated with energy-efficient HVAC, fire alarm systems, fire sprinklers, and roofing.
- The facade was restored with gold leaf accents, representative of the building’s former glory.
Project Results –
Team Solutions GC, with dedication, managed the entire design and construction of the office tenant improvement. They communicated with city officials to obtain permits on time for this historic building. Both the client and employees were satisfied with the office renovation executed by Solutions GC.
Conclusion
Commercial construction is the basis of any thriving community. It differs greatly from other types of construction in the sense that it shapes environments for a wide range of target audiences, aligning their unique requirements with resources, and driving success for investors.
Commercial buildings from retail stores to corporate offices and hotels to recreational facilities are important for both business owners and tenants occupying them. Hence, understanding commercial build process will enable you to make informed decisions, navigate projects more efficiently, and sustainably reach your business goals.
Partner With Us
Constructive Solutions, Inc. has a solid reputation for providing top-notch commercial construction services throughout San Francisco, San Jose, and San Mateo regions. To discuss your next commercial construction project, contact us today.
FAQs
What are the latest commercial construction trends?
Construction firms have a growing interest and expertise in the following popular industry trends:
- Robotics such as drones, 3D printing, and autonomous vehicles
- Sustainability and Green Building Practices
- Modular Construction and Prefabrication
- Cloud Computing
- Use of Artificial Intelligence (AR) and Virtual Reality (VR)
- Predictive Maintenance
What is the difference between a commercial contractor and a subcontractor?
A commercial contractor is hired by the client to manage all the aspects of a project. Whereas, subcontractors are hired by the commercial contractor to perform specific trades, for example, plumbing, roofing, HVAC work, etc.
How to find commercial construction projects?
Commercial contractors can find both private and public sector contracts through construction bidding websites. Besides, establishing and ranking your website high in search engines will help to gain construction leads.
Relevant Resources:
- 13 Things To Consider Before Starting Your Commercial Construction Project
- Commercial Construction Cost Breakdown: What You Need to Know
Constructive Solutions, Inc. is a full-service commercial construction company serving San Francisco and Bay Area.
Whatever your vision, we have the resources, experience, and insight to make your concept a reality, and a space where your business can flourish.
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