At the time this report was compiled in June 2013, construction costs continue to show an increase. Overall, costs have risen about 2.6% from 2012, and construction costs in the R&D sector have risen about 2.6% since January 2012. Construction costs are expected to rise around 4% during 2013 going into year 2014. This percentage of increase is the same as 2012’s report, and shows promise of a steady positive path.
The construction market continues to show signs of recovery. While there has been a significant increase in construction, we are still not seeing the pre-2009 increases in construction costs. With market stabilization, there is a positive outlook for the construction industry for 2013–14.
The most significant facts about the market are:
• 2013 reflects a market in slow recovery; the current market is more stable than the past few years, and the first half of 2013 indicates a rising market. The overall market in the second half of the year is expected to continue that trend.
• The overall market has increased about 4% since 2012. In keeping with the upward market trend, lab costs have also increased at about 1.2% since the start of 2013, and are expected to continue to rise as the market recovers further.
• Bids attract fewer responses than in previous years. In return, the competitive environment that pressured aggressive contractor pricing in past years has leveled off to allow more moderate pricing in the current market.
• Clients are approaching new work with emphasis on budget and design. Design must be smart, functional and mindful of cost.
• Although still budget conscious, clients appear more willing to start on major programs of work than they had in recent prior years.
• Labor rates have remained relatively stable from last year, particularly with the unions.
• The increased demand for commodities, including steel, copper, nickel and aluminum, have caused a rapid rise in material costs.
• The broader market continues to exhibit healthy signs of improvement. The recent round of quarterly earnings by publicly listed companies show profits increasing at a consistent rate.
• Civil engineering and infrastructure projects, including mass transportation, roads, and bridges, have seen increased growth from previous years.
• The technology sector shows the strongest growth by investors, which likely will result in positive earnings for the overall U.S. market.
• China’s investment in Latin America’s energy and natural resources is slowly waning from last year. China’s investment in the U.S. continues to grow to an all-time high.
• The European debt crisis persists and remains a cause for concern for global investors. The European Central Bank (ECB) has offered indefinite low interest rates to help spark a recovery. Despite these steps, the ECB has not made a positive impact as of yet.
• Concern continues to grow regarding the state of public finance, both at a federal and state level, as the government struggles to find balance. Government spending remains under heavy scrutiny given the current state of public finances as the U.S. continues to recover from the recession. Federal and state funding is low. As a result, there have been fewer publicly funded RFPs than in past years and an increase in work in the private sector.
• Oil prices have surged as U.S. stockpiles diminish. President Obama has pushed for $2 billion for research of alternative fuel sources over the next ten years.
• Barring any further economic problems, prices will continue to rise in 2013. As the market continues to improve, and project work begins to pick up, prices are expected to continue to increase.
The federal government has proposed a budget of $144 billion for federal R&D in fiscal year 2013. Some objectives for this budget include boosting the U.S. economy, improving public health, enhancing technology, developing clean energy alternatives and protecting the global environment. The benefits of investing in R&D not only affect the final products of scientific discovery, but also create new U.S. jobs and maintain the U.S. at the forefront in the world research market.
In 2013, although construction costs increased, there is a new expectation regarding how much clients are willing to pay for architectural and design services. In 2013, there has been a consistent rise in clients expecting low and extremely competitive pricing and, in some cases, expecting the same rates as they saw during the peak of the recession. The market remains very competitive, with much up-front design and budget pricing required before a project is awarded.
In summary, the markets are stabilizing at the tail end of the recession, and new work continues to grow in 2013. The latter part of 2013 is projected to be positive and on an upward trend. Prices are becoming more level and continue to rise. Clients are showing confidence in starting construction on their projects.
Construction costs: basis for calculations
Construction costs used to calculate the numbers include all hard construction on a gross square foot (gsf) basis. As a test, imagine raising the building and turning it upside down; whatever doesn’t fall out is part of the hard construction cost. For our purposes, along with the base building construction, these costs include: walls, doors, ceilings, mechanical/electrical/plumbing systems, lighting, elevators, and building automation systems. For a lab building, construction costs also include: lab furniture, fume hoods, biosafety cabinets and laminar flow hoods, major built-in equipment (such as sterilizers), walk-in rooms, large glassware or rack washer, built-in cabinetry, sliding walls or partitions used to subdivide large spaces, and food service equipment. The pathways, conduits, cable trays, and termination panels for IT and telecom systems are included, but the actual cabling and local devices and computers are not.
We included landscaping and utilities costs to five feet outside the building line. The numbers also cover general contractor’s overhead and profit (or the construction manager’s fee). It is also customary and prudent to include a design contingency fee in the construction cost.
Our numbers omit the following major purchased items:
• FF&E (furniture, fixtures, and equipment) costs. These include desks, workstations, chairs, furniture for conference rooms and common/break areas, file cabinets, and coat hooks.
• Moveable and benchtop equipment.
• IT, telecom, computer cabling, and telephone systems.
• Audiovisual equipment.
• Signage and artwork.
In addition, this report does not include so-called “soft costs,” such as:
• Architect/engineer design service and consultant fees.
• Construction change orders and owner’s contingency.
• Legal fees.
• Permits and filing fees.
• Unpredictable costs, such as land, financing, moving and relocation costs, associated with renovations.
Cost indexing is based on construction costs in the Tri-State New York Metropolitan Area. This analysis includes parts of New York, New Jersey, and Connecticut within 50 to 75 miles of midtown Manhattan. All boroughs of New York City (Manhattan, Brooklyn, Queens, Bronx, and Staten Island) are excluded from the base cost index because of higher labor rates and logistical costs.
Costs by trade
Figure 1 shows the allocation of construction costs for a typical biochemistry lab building (100,000 to 200,000 sq. ft.). The cost split for architectural work is approximately 40% and the same for MEP.
Costs by facility type
Figure 2 shows the range of construction costs per gross square foot by the type of research facility. Assumptions for each facility and the forecast average percentage changes (for a mid-cost range facility) are as follows:
• Biomedical. A mix of biology and chemistry functions, typical of university and medical school life sciences facilities. Cost increase from 2012: 1.8%.
• Animal research. Discovery-phase animal research, procedural spaces, non-GLP systems. Cost increase from 2012: 5.0%.
• Toxicology. Safety evaluation phase R&D, Phase 1-4 testing, GLP systems. Cost increase from 2012: 2.0%.
• Chemistry research. Oriented toward organic/synthetic combinatorial, medicinal, and structural chemistry. Cost increase from 2012: 2.0%.
• Biology research. Full range of basic and developmental biology sciences. Cost increase from 2012: 2.2%.
• Analytical chemistry. Development-phase quality control (QC), and QC in support of manufacturing. Cost increase from 2012: 2.1%.
• Software development. Mix of dry labs with raised floors, and office space. Cost increase from 2012: 2.1%.
• Hardware development. Same as software, with some physics and wet labs and some environment and cleanroom spaces. Cost increase from 2012: 2.0%.
• GMP production. The following facilities are part of a larger building or facility. They represent only a part of the full building cost. Class 10,000 spaces encompass staging, cleaning, and assembly. Cost increase from 2012: 1.9%. Class 1,000 spaces may be used for solid dosage form production. Cost increase from 2012: 1.8%. Class 100 facilities are suitable for sterile filling and preparations. Cost increase from 2012: 6.2%.
• BSL-3 lab spaces. Cost increase from 2012: 2.0%.
• BSL-4 lab spaces. Cost increase from 2012: 1.9%.
• Greenhouse. Cost increase from 2012: 1.6%.
• K-12 biology/chemistry teaching labs. Cost increase from 2012: 3.8%.
• Advanced physical science research. Unique state-of-the-art facilities with apparatus that replicates nature itself. Cost increase from 2012: 1.9%.
• Nanotechnology research. (excluding tool equipment) Cost increase from 2012: 1.9%.
Areas which may cause a variation in cost/sf are:
• Program space: the lab-to-office mix ratio (expensive space vs. inexpensive space).
• Floor-to-floor height.
• Use of interstitial mechanical space.
• Exterior wall material and area. The average building has a floorplate configuration whereby the aggregate exterior wall area is within 50% of the building’s total gsf. Any deviation affects the cost/sf.
• Perimeter of the exterior wall (perimeter-to-floor-area ratio).
• The efficiency of the floor space.
• Extent of system redundancies.
• Type of casework (fixed or flexible, metal or wood).
• Soil conditions and their effect on foundation design.
• Extraordinary degrees of vibration intolerance.
• Use of sole-source manufacturers.
• Restrictive site conditions.
• Lab finishes (vinyl composite tile and epoxy paint vs. synthetic flooring and high-build epoxy finishes).
Costs associated with sustainable design
Sustainable design features and practices continue to grow with respect to research facilities (despite the fact that no formal LEED standard has yet to be established by the U.S. Green Building Council for this building type). This has resulted in increasing numbers of examples and data points with which to develop metrics and base trends. Based on our experience and analysis, we offer the following response to the question most often asked by clients: “What is the cost premium to design and build a green or LEED building?”
The answer depends on a variety of key factors which vary significantly from project to project, including:
• What are we comparing “green” to? Depending on individual client standards, project location and local customary building techniques, the project that is being used as the basis of comparison might already be well on its way to a LEED certification status. In certain jurisdictions, compliance with enhanced building codes has already raised the bar on many projects.
• What costs are included? Capital costs are classified into direct, indirect, and soft costs. There are direct costs related to the LEED registration and certification process. Pre-requisites include fundamental commissioning, which may entail as much as a 1% project cost increase. However, commissioning is not only good practice but common practice.
• When is sustainable design considered? Good design should incorporate sustainable principles. Issues such as building orientation and massing do not typically cost any additional money to analyze properly in the design stage, but can be costly if considered later. When initiatives overlap, synergies occur, enhancing their impact.
Based on selected analysis, the step from basic responsible lab building design to a LEED v. 3.0-certified level (minimum of 40 to 49 points) may represent a construction cost premium ranging between 3 to 5% above usual predictable costs. As we reach for higher levels of certification, assuming these can be achieved, the premiums grow. However, the beneficial impacts on lifecycle costs (total cost of ownership) should be recognized as a valuable initial capital investment. These initial costs represent a fraction of the total lifecycle costs for ownership. Research facilities consume extreme quantities of energy (ie. water and power). Therefore more efficient design and equipment, though perhaps more costly, quickly become cost benefits.
The outlook by location
Local market conditions are stabilizing, but still suffering. Costs have continued to stabilize nationally, but are projected to slightly increase, with a rise through 2014. The basis for the indexed regional and international costs (Figure 3) includes: analysis of market conditions, review of project construction costs nationally, regional labor rates, and productivity factors. The regional variations are largely attributable to labor cost and productivity issues.
Cost Forecast Methodology
HLW International and Faithful+Gould have collaborated to show the cost trends of the 2013 market. The purpose of this report is to assist those involved in research facility planning, design, and construction in benchmarking probable facility construction costs. This document is a benchmarking tool and is not designed to replace a detailed cost estimate prepared during the course of a specific project, which is extremely critical. It is intended to help set a target and to measure progress. We have employed a multifaceted approach in generating these new forecasts. The methodology for developing the updated costs by facility type include:
• In-house cost indices for HLW and Faithful+Gould research facility projects.
• Review of nationally published cost data.
• Review and analysis of labor rate and productivity data.
John Gering, AIA, is managing partner and Carlie Campesi is senior associate, Dir. of R&D Design both with HLW International LLP, New York, N.Y.; www.hlw.com. Additional information was provided by Christopher Baxter, VP, and Ed Bullwinkle, technical dir., both with the consulting firm Faithful+Gould. www.fgould.com
This article appeared in the November/December 2013 issue of Controlled Environments.