Square Peg, Budget Hole

A lot of businesses operate using “rules of thumb”, professional practices that prove true over and over.  Eventually we learn “that’s how it’s done”.  For example, when you are looking for office space, your advisor knows that the price is based on the size of the space, then this rule of thumb applies:  space required times cost per square foot – and leasing is priced.

When planning a commercial development, there may be a temptation to apply a cost per square foot to a project, do the math, and pop out a budget number.  It’s a simple rule of thumb, right?  But the complex work, what seems to be an obviously true rule can be a financial trap.  When developing new business spaces, over simplified cost estimation can lead to budget overruns, and unplanned, negative, financial results.

Commercial construction management is more complex than a rule of thumb square foot calculation.  A strict “per square foot” approach equates to forcing a “square peg in to a round hole,” and won’t work for most commercial construction.  Here’s why:

Commercial buildings frequently combine spaces designed for different purposes, and those spaces require different levels of expertise to design, manage construction, build and operate.

Here are 3 different price points, a general rule of thumb costs for typical interior fitout projects generally between 5,000 – 10,000 SF:

TOTAL PACKAGE (excluding furniture)

Lower End Buildout:   $45 – 50 sf

• Carpet / VCT
• Few walls (ceiling height)
• Painted Doors
• Limited plan Cabinets
• 2 x 4 acoustic ceilings
• 2 x 4 lights
• Minimal HVAC / Zones

Medium End:  $55-60 sf

• Carpet Tiles / Ceramic Tile
• Acoustic with some drywall ceilings
• Some Glass Walls
• Nice Doors / Sidelites
• Limited Granite counters
• Some nice accent lighting

Higher End:   $70+ sf

• Carpet tiles / stone and ceramic tiles / polished concrete floor
• Exposed ceiling and drywall ceiling
• Glass partitions
• Stone / granite countertops
• Accent lighting
• Significantly more HVAC control

These finishes come with different costs and require different levels of knowledge to manage their construction.  For commercial construction, resist the temptation to use a simple “square foot” type estimate for budgeting.  Even if you can pound that square foot peg into one cell of your spreadsheet model, you may be disappointed.  The level of experience and sophistication needed to work with your team, for your facilities, will make an immense difference not only in the quality of the finished space, but in your ability to budget and plan the financial impact of your development.  Don’t get sucked into simple lowball bids that treat the development of your company’s future facilities like it was “renting office space.”  Ask the hard questions about how your specific business needs result in different costs, and be prepared for your results to be on budget.