Building Your Own Warehouse or Office Building - Be Careful

SO YOU WANT TO BUILD YOUR OWN WAREHOUSE OR OFFICE BUILDING?

Are you thinking - “Existing property prices are too high! I will build my own warehouse and save a bundle.” If I had a dime for every time we heard this from a client. Unfortunately for them, 99.9% of the time they will pay more - usually much more by taking the task on themselves, provided there are comparable existing buildings on the market.

Steel building companies advertise extensively and will throw out low pricing of the steel package for a building of say $10 or $15 PSF. This number sticks in the mind of the business owner and they think then that with the build out and the few extras, they can get in a new building for say $30 or $35 PSF. Experienced developers building very large, basic warehouses are unable to achieve that pricing. So, why does it cost so much?

Land 

You may find a nice parcel for $2 or $3 PSF and think perfect. This is inexpensive. That is just the beginning. Unless the property is located in a master planed development, you will have to install detention to meet the local drainage district’s requirement for onsite storm water retention. This can eat up 15% to 20% of your property. If you are in a floodplain, this loss can be substantially higher. If you are in the Floodway, you can’t build at all. If you are in the 100 year or 500 year flood plains, then you will have onerous restrictions on bringing in additional fill/dirt into the site and requirements for the height of the finished floor. Depending on the elevation fall between your detention outfall and the ditch of storm sewer connection you will have to determine if the runoff from the detention can be natural gravity or will require a pump station.

Once you get your drainage designed, you will need to pay for site work to scrape the site, dig for storm drainage and detention, roll and pack select fill, and prepare the building pad. A small project with detention can hit $80,000+ really quickly!

The Structure and Interior Finish 

Yes, you can get steel building packages for around $10 PSF. Then you will pay $5 to $7 PSF to have it erected. Still, that is just the beginning. Here are some of the other required expenses you will incur:

• Do you want insulation of the roof deck? Figure an extra $1.50 PSF+
• What about overhead doors and windows? Not included. Overhead doors can run $1,500 to $2,000 each installed. That is for manual 12X12 doors. Large electrically powered doors can be $20,000.
• Electrical to the building and throughout the structure can be $30,000 for basic service to much more depending upon the voltage and amperage requirements and the number of outlets/connections you require.
• What about interior house lighting? Not included. LED fixtures can be $200 to $300 each plus install.
• Oh wait; you need the concrete slab…that is another $6 - $8 PSF, not including underlying fill.
• Now you have a steel building, what about the exterior wall finish? Brick, tilt wall, stucco, block, some combination of the above? Add another $8 to $20 PSF of exterior wall - yes, height x width of each wall.
• You will also need office area and restrooms once the shell is complete. Now add $60 PSF + for the office area.
• Does the building need to be fire sprinklered - which may be required by local city/county code? Add another $4 to $6 PSF.

Utilities, Drainage, Paving, and Landscaping

Now that the building and interior are accounted for, you will need to add the following improvements to the exterior:

• Water and Sewer connections
• Connection for Fire Sprinkler system, if required
• Storm drains and related lines
• Detention pond with outfall devices - possibly a pump (as discussed above)
• Access from the road to the building will require concrete, asphalt, of stabilized crushed concrete and the related soil subsurface preparation. You are looking at $4 to $8 PSF depending upon the material
• Landscaping - even a minimal setup is $5,000+. Add a sprinkler system and figure another $1,000 minimum.

Building Coverage 

Coverage is the amount of building area you can fit on your land parcel after taking into consideration building/parking setbacks, green space/landscaping/parking requirements, detention areas, access drives, storage yards, etc. If you can only get 25% coverage, then you for every dollar PSF you spend on land, you will have $4 PSF in the total finished building cost just for land.

Soft Costs 

Often overlooked are the fees associated with the design and engineering of a development. Even a simple small warehouse building requires civil engineering site design for utilities, drainage, slabs and access. Then an architect will design the buildings from the slab up, including the interior space design. These fees can run upwards of $5 to $10 PSF. Other soft costs include soil testing, lender required inspections, phase one environmental reports, appraisals, lender points on the loan, and much more.

Permitting and Impact Fees 

Permitting fees are usually small compared to the overall project costs; however impact fees and connection or tap fees can be substantial. These are incurred when connecting to the local water and sewer provider’s main lines.

Your Time…What is it Worth? 

The most overlooked cost associated with building your own facility is the opportunity cost of your time spent managing the project, learning from costly mistakes and tackling the learning curve. A qualified commercial broker can identify experienced contractors with a history of building your type of building and will have a proven track record with a long list of references. Get your broker involved before making costly mistakes.

Are you looking for Warehouse, Office or other space? Do you need to renew your lease? Give us a call or click on our chat widget to reach a licensed real agent or broker that specializes in Commercial Real Estate.