Construction Costs for New Commercial Buildings and Build-Outs

Commercial buildings are a bit different than homes. They must adhere to certain building codes, withstand powerful forces of nature, and withstand high-traffic conditions from customers every day that they are open for business.

There are many aspects to consider when building on commercial property. Since businesses are on a larger scale than homes, they often require more heavy-duty equipment, more laborers to build the construct, and higher-grade materials than would be placed in a home. 

Elements of a Commercial Construction Project

In order to find out the cost to build or build-out a retail or restaurant space, a property owner must consider all the aspects to a construction project, like:

• Foundation
• Windows and Doors
• Lighting and Electric
• Roofing
• Flooring
• Equipment Installation
• Plumbing
• Heating, ventilation, and air (HVAC)
• Materials and Material Delivery: Materials are often bought in bulk by the contractor and sold to the property owner with a profit margin. Delivery of the materials is a separate cost, often paid to the distributor unless the construction company delivers the materials themselves.
• Construction Labor: Aside from the cost of material, there will be a separate fee for labor. Some laborers get paid for work they do (square footage, linear footage) and some get paid by the hour. These rates are typically negotiated or stated by subcontractors and contractors prior to the beginning of construction. Understanding that the cost of construction labor and materials are two separate entities is a great thing to know when taking into consideration cost and budgeting a build-out.

Build-Out Costs: What Are They?

A build-out is an addition or improvement to an already existing construct. Build-outs in construction usually mean more money for retailers, restaurants, and offices as additional square footage means more room for products, customers, and employees – which, in turn, means more revenue opportunities.

Retail build-outs can be anything from square footage expansions, story additions, fixture additions, refreshing the paint or the flooring, putting up or tearing down walls, and even exhibit additions to draw in more customers (some retail stores and restaurants like to add quirky displays to match their brand).

Build-out costs are also known as tenant finishes or commercial tenant improvements. The reason for this is because when a new tenant rents a commercial space, they often rent or buy the space with a different use for the building than the tenant before them. So, they negotiate a price with the landlord – or pay for it themselves – and hire a designer and project manager to re-design their space with their company’s brand and purpose in mind.

Commercial Construction Costs Per Square Foot

The Chain Store Age conducted a survey for retail companies all over the U.S. to see exactly how much they spend on construction costs alone (before decorating and outfitting their stores to match their brand). The survey covered every aspect of construction including:

• Lighting and Electric
• Signs
• Fixtures and Appliances
• Roofing
• Flooring
• HVAC

The survey targeted two different segments: free-standing retail stores and tenant build-outs for retail stores and shopping malls. Here’s what they found:

Freestanding Stores

• Retail Stores: This includes chain grocery stores, convenience stores, and other home goods stores. These stores were found to be the most expensive to build, with costs averaging $60.45-$70.06 per square foot for construction.
• Big Box Stores: Box stores such as those for home improvement were the second most expensive – ranging from $44.25-$48.00 per square foot for construction.

Tenant Build-Outs

Tenant build-outs that include retail stores, convenience stores, and shopping malls averaged out to $56.53 per square foot. This cost included interior work on the drywall, ceiling, paint, flooring, and stairs, but does not include installing fixtures or appliances in the building.

Outfitting Costs Per Square Foot

The same Chain Store Age survey collected data for retail outfitting as well. Outfitting is essentially adding the finishing touches to the building after the initial construction phase is completed. Average costs and aspects of outfitting include:

• Displays and Fixtures: $7-$11.57 per square foot
• HVAC: $2.61 per square foot
• Roofing: $3.59-$4.41 per square foot
• Ceiling: $0.42-$1.81 per square foot
• Signs: Indoor signage installation averages around $0.93 per square foot, while outdoor signage installation averages $1.43 per square foot.
• Indoor Lighting and Electric: $3.20-$3.85 per square foot
• Flooring: $2.76-$3.77 per square foot

Overall, the Chain Store Age survey showed that construction and outfitting costs are trending upwards in cost, making building and build-outs even more expensive for property owners. While trends are only showing a difference or dollars and cents in price, this makes a huge impact on retail construction – since retail stores are often in the thousands in terms of square footage.

Restaurant Build-Out and Outfitting Costs to Consider

Retail costs and restaurant construction and outfitting costs are similar, it’s noteworthy to put them into their own category – since restaurant have their own standards to adhere to in construction. As restaurants are usually fast-paced environments, property owners should always extra equipment and extra precautionary construction (such as non-slip floors) to avoid hazards that could harm employees and guests.

Aspects and costs to take into consideration when building a restaurant include:

• Non-slip floors: Since restaurants often work with a lot of greases, oils, and other messy food items, slip hazards are a big consideration in the restaurant industry. Installing restaurant-grade tiles is the number one way to help avoid accidents and injuries. For example, property owners should always buy textured tile or flooring for their restaurants. This provides employees and guests’ shoes extra traction and will greatly help in avoiding slips and falls during work or dining.
• Extra ventilation in kitchens: When cooking for large quantities of guests, restaurant kitchens only get a break at closing time. So, it’s important to account for extra ventilation and commercial air conditioning units. Not only does extra ventilation keep employees safer and more comfortable while at work, but it also protects the food from spoilage.
• Large Bathrooms: If the restaurant is a larger, chain company, then large bathrooms are necessary to accommodate the number of people visiting the restaurant.
• Extra Lighting: Extra lighting is essential for restaurants. Cooks and chefs need extra lighting in the kitchen to food safety reasons and often lighting adds to the ambiance of the restaurant. Lighting is also necessary to keep food warm, like on a warming line where food is placed as waiters and waitresses collect their orders to deliver to their guests.

Commercial Construction Costs by Region

To further understand the cost of construction in retail and in the restaurant business, it is wise to get an aerial view of the overall costs per square foot by region in the U.S today:

• West: $277-$1001 per square foot in cities such as San Francisco, Los Angeles, San Diego, Las Vegas, Seattle, Portland, and Honolulu for single-story to high-rise buildings.
• Midwest: $135-$914 per square foot for cities such as Denver, Chicago, and Nashville for single-story to high-rise buildings.
• South: $235-$674 per square foot for cities such as Atlanta, Dallas, Miami, and Orlando for single-story to high-rise buildings.
• East: $233-$1026 per square foot for cities such as Washington D.C., Philadelphia, New York, Boston, and Raleigh-Durham for single-story to high-rise buildings.

Wrapping Up

Whether it’s a new commercial construction or a build-out for a restaurant, there are so many aspects to consider when budgeting for a construction project. From lighting to flooring and roofing to signage – every property owner should be aware that each aspect costs different amounts. The final cost of a construction project or build-out all depends on the total square footage of the building and the top budget a property owner can afford for outfitting the project.
For safety reasons, property owners should never skimp on materials, ventilation, lighting, or proper flooring during construction. Instead, they should understand the standards for commercial facilities when it comes to proper materials. This only ensures that a restaurant or retail store is comfortable for its guests and up to safety standards.