Warehouse construction costs some together with a variety of factors, including the purpose of the warehouse, access to logistics infrastructure, and a ready labor supply, to determine the financial viability of the investment. Warehouse construction costs themselves are crucial to understand and quantify accurately in order to generate an appreciable return on investment for builders. Warehouse construction costs, alongside ongoing operations and maintenance costs, play a central role in the financial viability of a project. Because of the important role that warehouse construction costs play, it is worthwhile to gain a better understanding of the factors that influence warehouse build costs. In this article, we’ll break down how the location of the warehouse, the purpose of the warehouse, and the construction method can all influence construction costs. We’ll also look at dynamics present within the construction industry at large that may influence warehouse construction costs. This information should help provide some insight into the deciding factors that raise or lower warehouse construction costs.
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Factors Influencing Warehouse Construction Costs
Warehouse construction costs are dependent on a number of factors that interact to give a final build cost. As such, the construction costs for each warehouse will be unique. In general, location, the purpose of the warehouse, size, and design considerations will come together to increase or decrease the cost of warehouse construction and help you decide between different building types. These are each modified by other factors in turn that may be dependent on business and mission objectives, logistics and storing requirements, and regulatory requirements in the warehouse’s location.
It's important to incorporate the wide variety of factors that influence warehouse build costs into any estimate. Investors must understand the capital costs of investment, including hard costs like materials and labor, and soft building costs like permits and accrued interest. While we will look specifically at how location, warehouse type, and construction method can impact construction costs, it is important to keep in mind that there is a myriad of other factors that can also impact the final construction cost of a warehouse. Checking with an RSMeans database can be extremely useful, If you’re looking for the most current construction cost estimates. Today’s warehouses are influenced by a number of different design considerations that can impact construction costs. The ability to quickly and easily compare different designs and layouts while dynamically updating material costs is increasingly in demand. The reliance on data-driven cost estimates will only continue to grow in coming years as warehouses become more complex and technologically integrated. At the same time, data-driven cost estimates have the added advantage of being able to quickly add margins to account for future increases to material and labor costs, both of which are necessary to keep in mind when arriving at a final construction cost.
Location is a deciding factor in the overall price of construction for warehouses. Warehouses can serve many functions, and often the function of the warehouse space and its physical location is tied together. Warehouses used as a shipping and receiving point will need ready access to key infrastructure that can limit location choice. While this has always been the case, it is becoming increasingly important over the years as goods transportation services have expanded in scope, reach, and efficiency. Most modern warehouses are purpose-built from the ground up to facilitate the fast and efficient movement of goods. Warehouse location plays a central role in the turnaround time between receiving and distribution. The ideal location is also reliant on access to necessary infrastructure. For example, if the majority of incoming goods are shipped through freight air transport, access to air transport infrastructure hubs like Memphis may be a deciding factor when choosing the location of a warehouse.
Warehouse construction costs per square foot vary depending on location. Land costs are one factor in this, but there are other factors as well. Increased labor costs in key urban markets, along with regulatory requirements and fees, will also be a deciding factor in the final realized cost of warehouse construction. A recent report by Rider Levett Bucknall (RLB) illustrates this. The report offers a comparison of estimated warehouse construction costs in 12 major U.S. cities during the second quarter of 2018. Among the cities in the study, there is a wide range of construction costs. Honolulu had the highest construction costs in the survey with an estimated construction cost of $140-225 per square foot. The city with the least expensive warehouse construction costs was Las Vegas with costs averaging $50-100 per square foot. Phoenix was a close second to Las Vegas, with costs averaging $55-100 per square foot. Los Angeles and New York were both at the upper end of the spectrum, with costs averaging $115-180 and $115-200 respectively. Interestingly, San Francisco had the smallest range of construction costs of any area surveyed, with a construction cost range average of $140-190 per square foot.
The report by RLB demonstrates the crucial connection between the final realized construction costs and location. It is important to keep in mind that the report considers hard costs only. Soft costs such as regulatory permits, zoning, and building requirements, and ongoing interest accruals would also have to be incorporated into the final realized cost. However, the RLB report provides an insight into the wide range of construction costs for warehouses across select U.S. cities. Urban centers have much higher competition for the limited pool of skilled labor in the construction industry in the United States, driving construction costs up as skilled labor wages rise. Additionally, major shipping and receiving terminals like New York and Los Angeles provide access to key infrastructure at a premium.
Type of Warehouse
The use of the warehouse will determine certain design considerations and affect final project costs. Warehouses are used for a variety of reasons, from storage to shipping and receiving hubs. The purpose of the warehouse will necessitate specific design considerations that will be a key determining factor in warehouse construction costs per square foot. There are three main categories that warehouses fall into. These are general warehouses, refrigerated warehouses, and controlled humidity (CH) warehouses.
General warehouses have the least requirements of the three. They may be heated or unheated, and most often are constructed to have shipping and receiving access, rack or bin storage space, toilet facilities, and may have office space. Refrigerated facilities are used for the preservation of perishable goods or as storage for other goods that require special temperature considerations. Refrigerated facilities may have different regulatory requirements, and will need an extensive HVAC and refrigeration system, as well as sensor and monitoring systems. Controlled humidity warehouses are similar in structure to general warehouses but will incorporate a vapor barrier and humidity control equipment to meet storage requirements for certain goods.
Each of these core types of warehouses will have different construction costs. Each structure will have different regulatory requirements, material considerations, embedded technology, and an inherent underlying purpose that will help determine final realized construction costs. General warehouses have the lowest construction costs. Refrigerated and controlled humidity facilities will have stricter requirements and higher embedded technology that allows for temperature or humidity control. These latter facilities will also have higher operational costs and may have greater construction lead times, contributing to higher soft costs when compared to general purpose warehouses.
Warehouses can also be specially constructed to store specific materials. Liquid storage, ammunition storage, flammable liquid storage, or radioactive material storage are all examples of specialty warehouse structures purpose built to hold specific materials. Specialty warehouses will have substantially increased construction costs due to specific material, building, and monitoring requirements. Additionally, greater restrictions are placed on where specialty warehouses may be built. This can limit access to labor supply and logistics infrastructure, further leading to increased costs.
The two primary construction methods for warehouses are tilt-up concrete or steel construction. Both methods have inherent advantages and disadvantages. The choice of construction method can have a substantial impact on the final realized construction costs. The most basic type of warehouse construction method is a steel prefabricated warehouse. Prefabricated steel warehouses are modular in design and are constructed using pre-constructed steel supports of a determined size. Walls and roofing material for steel prefabricated warehouses are often aluminum or steel siding. The advantage of steel warehouses is that they can be quickly constructed and are cost-effective for smaller warehouses when compared to concrete tilt-up warehouses. There are a couple of inherent disadvantages to steel warehouses which may not make them suitable for all projects. First, steel warehouses have poorer fire resistance than concrete structures. While steel is fire resistant itself, should a fire break out steel has poor resistance to heat which can compromise the structural integrity of the building. This is an important consideration for warehouses depending on the goods that are stored there. Regulatory requirements may require enhanced fire safety technology in steel warehouses, and certain goods may not be eligible to be stored in a steel warehouse. A second disadvantage of steel warehouses is that they are less durable than their concrete counterparts. Steel corrodes over time, so steel warehouses lack the longevity of an equivalent concrete warehouse.
Concrete tilt-up is a construction method where the walls of the warehouse are cast out of concrete on the job site and then lifted into place using a large crane. Concrete tilt-up construction has been in use for nearly as long as large-scale cranes have been available. The advantages of concrete tilt-up construction are numerous when compared to standard prefabricated steel frame construction. Warehouse building that uses this method is more flexible because structural materials are constructed specifically for that job. Panels can be built to larger specifications than prefabricated concrete panels, due to shipping and transportation constraints for prefabricated concrete walls. Tilt-up warehouses are safer for workers because they allow them to work on walls at ground level, rather than requiring extensive vertical formwork from carpenters and steelworkers. Tilt-up warehouses can also be constructed very quickly. Given proper design considerations, walls can be cast and raised in such a way to reduce the overall construction and erection time. This is an important cost consideration because it reduces the cost of the expensive crane rental required to complete assembly of the building.
Although tiltwall construction is generally one of the most common for warehouses, prefabricated concrete construction also occurs. Both concrete construction methods have some inherent advantages over steel buildings and the most effective construction methods for construction are determined on a case-by-case basis. Tilt-up concrete buildings have a much higher fire safety rating as concrete can resist fire for up to 4 hours depending on the thickness of the walls. This makes concrete construction ideal where fire safety considerations are paramount, or where regulatory requirements necessitate the use of fire-resistant building materials. Aside from fire resistance, concrete structures also have the added advantage of being weather and corrosion resistant.
The downside of concrete construction methods is that they are inherently more expensive than steel structures up to a certain point. Economies of scale play an important role in the cost of warehouse construction, particularly when it comes to construction method and materials. While steel construction methods provide excellent cost-effectiveness for smaller structures, very large warehouse structures utilizing concrete can be more cost-effective. Thus, the size of your warehouse will play a central role in both construction material and construction method. Volatility in current steel prices will also be a deciding factor for material choice in the foreseeable future. Recent tariffs on steel and other metals have led to a dramatic rise in material costs for the construction industry. Material costs in June 2018 were roughly 10% greater than in June 2017. Steel prices rose almost 2% in the previous month and were up 12.3% from one year prior. Tariffs have slowed the import of steel into the United States, while domestic steel production is lagging behind current demand. For warehouse construction projects, steel and other essential material costs will play a central role in the final realized cost of the project.