by Michael J. Dwyer, Principal, Cost & Review Group Leader
New construction has not seen the recovery that was hoped for this year, but there is a bright spot emerging. Rental apartment buildings are anticipated in a number of larger cities, and the demand for these apartments is growing.
There are many indications that rental apartments will be in demand over the next three years as the housing crash has caused displaced homeowners to look for other living arrangements. The appeal of homeownership has, also, lost its luster, because of the “recession” and many would-be buyers are seeing rentals as a worthwhile option.
Although material prices have risen (generally 5% year over year), Contractors are still aggressively bidding and absorbing the material cost increase to garner more and more work. Developers and Builders are certainly enjoying the bids that are coming in, as pricing is more competitive than it has been in quite a number of years.
The recent concessions by unions, the lack of new development in many suburban areas, and the reduced labor costs of home office staffs are resulting in pricing that is near 2009 levels. This is not to say that pricing will remain at these levels since many of the smaller firms and/or specialty firms have not been able to weather the storm. With fewer firms able to professionally and adequately provide the necessary services, competition is starting to diminish in certain areas.
Even though most construction firms and unions have made substantial concessions to maintain viability during the recession, Developers continue to pressure for lower and lower pricing. As the recovery gains traction, a turnaround may become evident sooner than expected.
Many Clients and Developers agree that we are not over the hump yet, but there are some signs that we are now in the midst of a slow recovery. Did someone say “election year”? Over the next few months we will see whether the recovery is real or just enough improvement to get us past November 2012.
That said, the table below provides mean (average) construction costs of rental apartment construction projects:
| Trade Line Item | Unit Cost | % of Total | Unit |
| Foundation/Pilings | $183.28 | 9.8% | Footprint |
| Superstructure | $28.82 | 15.1% | Total Bldg |
| Exterior Glass | $55.98 | 14.5% | Ext. Glass |
| Exterior Wall | $35.74 | 2.4% | Other Ext. |
| Roofing w/Pavers | $2,220 | 1.2% | Roof Squares |
| Miscellaneous Iron | $0.80 | 0.4% | Total Bldg |
| Interior Partitions | $17.63 | 7.2% | Bldg Equiv |
| Finishes | $14.39 | 6.1% | Bldg Equiv |
| Cabinets & Appliances | $7,494 | 1.4% | Apt. Units |
| Specialties | $8,243 | 1.6% | Apt. Units |
| Elevators | $18,076 | 2.1% | Elev Stops |
| Plumbing | $10.96 | 4.6% | Bldg Equiv |
| HVAC | $20.17 | 8.4% | Bldg Equiv |
| Fire Protection | $3.31 | 1.7% | Total Bldg |
| Electrical | $20.94 | 8.6% | Bldg Equiv |
| General Conditions | 13.0% | 12.5% | % of Total |
| Builder’s Fee | 2.5% | 2.4% | % of Total |
| Building Hard Costs | $237.72 | 100.0% |
When one is comparing project budgets to conventional historical data, there are many aspects of the actual project that require evaluation. Location factors, which are percentage adjustments for particular localities, need to be applied to the mean cost estimates. Construction inflation factors, which are cost adjustments to historical data to reflect the latest labor rates and material cost adjustments for a particular locale must also be applied. Lastly, the level of finish, such as luxury versus moderate income units, will have a significant effect on construction pricing.
Merritt & Harris, Inc. has been providing construction cost analyses for almost 75 years and our industry leading cost reviews are essential to the development process. If you would like to discuss your project or have just general construction cost questions, please contact Mike Dwyer, Principal, at 212.697.3188, ext. 309.