March 9, 2023

Commercial Construction Insights: Consider Your Soft Costs

Commercial Construction Insights

When working through the planning and commissioning phases of your commercial construction project, you’ll spend hours reviewing budget considerations. And if it’s the first time you’re coordinating a commercial build, it can be challenging to anticipate every potential expense. There are a host of expenses that can be easy to estimate upfront. However, there are additional costs that might be harder to quantify in these early planning stages. 

It can be helpful to separate the hard construction costs from the soft costs. During your commercial building discussions, look to identify soft costs since they tend to be overlooked initially. This guide will help you better understand what soft costs are and how they will impact your overall commercial construction budget.

Hard Costs vs. Soft Costs

Starting with the basics, look to separate your project’s anticipated hard costs from the soft costs. Hard costs are those expenses associated with the physical elements of the building’s construction with the first being your property purchase or lease rate. Your construction quote will include the hard cost of building your project and should include materials, labor, and permitting fees. 

Determining an accurate estimate for soft costs can be more challenging. Soft costs are those expenses associated with the intangible elements of your building construction and may include price tags that come with planning initiatives and consulting. They also include permitting costs, financing fees, insurance, and other intangible services.

Don’t mistake soft costs for commercial construction contingency costs. Contingency costs are technically both hard and soft. They are a reserve of funds you might set aside within your project planning efforts to address any unexpected expenses that arise throughout construction. Such examples might be discovering underground boulders or excessive rock during excavation, finding undisclosed electric or piping underground or within a concrete slab, or uncovering asbestos during demolition.

Examples of Commercial Construction Soft Costs

When planning your commercial construction project, think beyond the physical requirements of your build and discuss the investments required and expenses associated with services and those intangible must-haves. Here’s a list of soft-cost examples that might apply to your initiatives.

Architectural Fees and Design Charges

There will be fees associated with the design stages of your commercial construction project. The structural planning, designs, and engineering investments will all fall under soft costs. And some of these steps will require additional investment into area studies or geotechnical details. Any consultant brought in to help organize and coordinate your build will come with a price tag. And those expenses should all be added to your budget as soft cost considerations.

Marketing and Advertising Soft Costs

Not all commercial construction projects will have marketing or advertising expenses. However, many will, especially if you’re involved in community improvement building or commercial expansion that seeks additional support. Any public relations campaigns, marketing efforts, and direct advertising will need to be represented in your budget. Marketing firms, signage companies, and investors all come at a price that deserves a spot in your budget lists.

Rental Expenses

Another soft cost expense to look for as you budget for your project involves rental fees. Depending on the nature of your commercial build, there may be a need to rent certain equipment and tools. Most of the construction equipment will fall into the hard-cost category. But don’t overlook the potential need to rent specialty equipment. Other rental expenses that are considered soft costs include trailer rental, communications systems, office equipment, or staging tents. 

Inspection Fees Are Soft Costs

Don’t forget to allocate funds for commercial construction-related inspections. They’re a critical part of the process, especially for securing the necessary permits and approvals. There are several inspections necessary throughout the typical build. Be sure you’re budgeting appropriately for building inspections, permitting application inspections, and occupancy permitting inspections. Ask your contractor which of these fees might be included in your construction proposal.

Accounting & Financing Fees

Additional soft costs to consider include those involved with your accounting, construction loans, and financing. For example, there will be interest charges on commercial lending funds. There will also be service fees for any third-party professionals handling your accounts, like a CPA or bookkeeper. There may be software costs within these expenses, too. So talk with your lenders and accounting partners to determine exactly what your project soft costs will be.

Legal Consultancy

For some commercial projects, it might be best to have legal representation with a real estate attorney who can help oversee the legal aspects of your building project. From real estate transactions and closings to contract review and facilitation, there are plenty of reasons to involve an attorney. Attorneys, however, are not free. So add any legal services and fees to your commercial construction budget.

Project Management Fees

You’ll likely enlist the professional help and guidance of a commercial construction expert and project manager. This partnership might involve a team of project supervisors to ensure timelines and budgets are maintained throughout construction. Project management fees may vary depending on the nature of your preferred services. However, there could be costs for payroll for ancillary staff and other service layers. Talk with each project manager about what additional soft costs you can expect before partnering, so you can budget accordingly.

Tax Assessments

It’s not uncommon for state and local municipalities to assess taxes on certain commercial projects. There will be many variants involved, and it’s usually a good idea to blend these potential costs into your soft cost estimates. They will play a role in the total project’s budget and, if not estimated or anticipated properly, can add a significant amount to your planned investment.

Insurance Rates

In addition to taxes, the other constant in life is insurance. As you develop your commercial construction budgets, be sure to discuss anticipated insurance coverage your project might need from start to finish. There might be fees associated with insuring a bid, performance bonds, and liability insurance premiums. Insurance companies can increase your rates, too, should your project costs increase. Talk with providers to anticipate these soft cost fluctuations. 

Land and Real Estate Soft Costs

There are other real estate and land-related soft costs to consider. Yes, many of these might fall under permitting soft costs or rental staging costs. But there are other layers of expenses to anticipate, too. These might include title search fees, site staging costs, and land acquisition expenses. 

Post-Construction Expenses

When budgeting for your commercial construction project, don’t presume the soft costs end when the building is finished. There are post-construction soft costs to consider as well. Some of these include any finishing landscaping, legal finalities, and additional taxes. Flesh out any final steps your project might entail beyond the final nail, and be sure to account for those soft cost expenses in your initial budget.

Let Jerdon Construction Be Your Guide

With so many layers to coordinating a commercial construction project, including estimating hard and soft costs, your project can benefit from the expertise of Jerdon Construction. With years of commercial project experience throughout the Lehigh Valley, we team up with clients building retail spaces, healthcare facilities, education buildings, warehouses, faith-based structures, and more. We can help you with your project, from initial discussions to the final ribbon cutting. Explore the many facets of our commercial services to see how we can best complement your project!

  • General Contracting
  • Construction Management
  • Conceptual Estimates
  • Designs 
  • Building Maintenance
  • Emergency Repairs

For any commercial construction project you’re discussing, rely on the Jerdon Construction team for every stage of the process, including those related soft costs to consider in your budget.