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Hard Costs vs Soft Costs

When budgeting for a commercial development project it’s important to remember that costs typically break down into two broad categories: hard costs and soft costs.

Considering the impact of a thorough budget on the success of a development project, it’s important to understand some of the specifics of these cost breakdowns. You should be able to note not only the anticipated costs associated with your project but also recognize the elements that your estimates are based on. Let’s take a quick look at hard vs soft costs, examples of each, and how you can estimate the costs of each.  

 

What are hard costs?

These costs consist of tangible and quantifiable materials and elements of the development project. This category typically accounts for roughly 70 percent of your total construction budget. Hard costs items include:

  • the shell of the building,

  • parking,

  • site work and landscaping,

  • additional paving,

  • HVAC units and service,

  • technology and security costs,

  • electrical components,

  • backup power and generation,

  • and construction labor

One of the biggest factors impacting estimates of hard costs is varying material and labor costs. Additionally, varying project specifications can make hard costs more difficult to estimate. Proper use of using historical information, bids, and proposals can help provide better estimates on development projects. It’s also important to factor in contingencies to help cover the unexpected hard cost changes.

 

What are soft costs?

Soft costs are those that are not directly related to the physical construction of the building. They consist of a number of elements surrounding construction and drastically affect the hard costs of a project. Proper design and engineering can help to lower a project’s hard costs.

Soft costs items include:

  • architectural fees

  • engineering fees

  • interior design fees

  • civil engineering costs

  • permits and fees

  • testing and inspection

  • environmental phase 1 study

  • project manager fees

  • legal fees

Soft costs can also include expenses that continue after project completion such as building maintenance, insurance, security, and other fees associated with the asset’s upkeep.

Again, proper use of using historical information, bids, proposals, and the right partners can help provide stable estimates of a project’s soft costs.

 

The impact on a project

Whether the costs fit into either of these two categories or not, establishing a well-planned budget is key to maintaining construction costs. Construction costs impact factors such as a tenant’s rental rate to the projects overall return on investment. It’s always important to have a detailed breakdown of a project’s hard and soft construction costs and to know the effect that they have on its economic viability.


Determining hard and soft costs are challenging, and the accuracy of an estimate can make a difference in whether or not a project is feasible. Finding the right partner gives you the confidence you need to know so your next construction project can stay on budget and schedule.

Tags: Commercial Real Estate Development

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