Note on ranges: Construction costs vary considerably by market, building specification, site conditions, and timing. The ranges below represent general industry parameters. Items marked with a yellow flag require project-specific verification with local contractors and engineers.
The Cost Stack at a Glance
A ground-up small bay industrial project involves four primary cost categories: land, hard construction, soft costs, and financing (carry costs during construction). Each category has its own drivers and variability. Understanding the full stack is essential before committing to a site.
| Cost Category | Typical Range | Notes |
|---|---|---|
| Land | Roughly 2 to 5% of total project cost on our recent projects | Varies widely by location, zoning, and site condition |
| Hard Construction | $80–$140/sq ft | Building shell + site work; higher end for complex sites |
| Soft Costs | 8 to 10% of hard costs | Architecture, engineering, permits, legal |
| Contingency | 10–15% of hard costs | Budget for unforeseen conditions |
| Financing Carry | Varies | Interest during construction; typically 12–18 months |
Land Costs
Land is often the most variable component of a small bay development budget. The range from cheap fringe industrial land to expensive infill land can span 10x or more within the same regional market. Key variables:
- Zoning: Land already zoned for light industrial is worth more than land requiring a rezoning, because the entitlement risk has been removed. A pre-zoned site may cost 20–30% more per acre than comparable land requiring a zone change, but the premium is often worth it given the timeline and risk reduction.
- Location within the market: Infill industrial land near established neighborhoods commands a premium over suburban fringe land. For small bay, the infill premium is often justified by better tenant demand and lower lease-up risk.
- Site condition: Flat, rectangular, with existing utilities stubbed to the parcel is ideal. Irregular, sloped, or previously developed sites with environmental considerations require additional investigation and may need significant site preparation costs beyond the purchase price.
- Parcel size and configuration: Small bay developments typically need 2–8 acres to produce a meaningful number of units. Sub-2-acre sites limit building size; larger sites can accommodate multi-building campuses with phased development.
On our current Delta Township project, the site came in at $122,000 total, about 2% of the $5.4MM project budget. Land priced above roughly 10% of total project cost has to earn its way in with location.
Hard Construction Costs
Hard construction costs include all materials and labor to construct the building shell, interior unit buildout, and site work. For a standard small bay complex, hard costs typically range from $80 to $140 per rentable square foot, with significant variation based on:
Building Construction Method
The two dominant construction methods for small bay industrial are metal building systems and tilt-up concrete. Metal buildings are faster and often less expensive; tilt-up concrete is more durable and has better aesthetic appeal. The cost differential varies by market and contractor availability, but metal buildings often come in at the lower end of the range and tilt-up at the higher end.
Site Work
Site work, grading, utilities, paving, stormwater management, landscaping, can add $15–$30 per square foot or more in challenging conditions. A site that requires significant fill, extensive utility extension, or complex stormwater infrastructure (detention basins, bioswales) will be at the higher end. A flat, well-positioned site with utilities readily available can be developed for much less. Site work cost is one of the most common sources of budget surprises; thorough due diligence before land purchase is essential.
Unit Buildout
Base building construction typically includes the shell, overhead doors, slab, basic electrical panel, and bathroom rough-in. A standard unit with these elements typically runs in line with our $95 per square foot shell budget: roughly $115,000 to $140,000 for a 1,200 to 1,440 square foot unit before tenant-specific improvements. Tenant improvements above this baseline, plumbing upgrades, HVAC, additional power, office buildout, are typically either amortized into the lease rate or negotiated as tenant allowances for creditworthy tenants signing longer terms.
What Drives Costs Higher
- Specifying higher clear heights (16+ feet vs. 12–14 feet)
- Adding office buildout or mezzanines to units
- Complex stormwater requirements (some municipalities require detention for 100-year storms)
- HVAC beyond basic unit heaters (full HVAC adds meaningful cost)
- Three-phase electrical throughout (vs. single-phase with upgrade provisions)
- Constrained site conditions requiring special foundation work
- Market conditions with limited contractor competition
Soft Costs
Soft costs are the non-construction professional services required to design, permit, and deliver a project. They typically represent 6 to 8% of total project cost on our recent projects (about 8% of hard costs) of total project cost and include:
- Architecture and design: Building design, construction documents, specifications. Experienced industrial architects can often reuse and adapt prior plan sets, reducing cost for developers with a repeatable product.
- Civil engineering: Site plan, grading, utilities, stormwater management. Often the largest single component of soft costs on a raw land development.
- Structural engineering: Building system design and stamped drawings for permits.
- Environmental assessment: Phase I (and Phase II if indicated) on any previously developed site. Even sites with no known contamination should carry a Phase I; lenders require it.
- Permits and fees: Building permits, plan review fees, impact fees, and utility connection fees. These vary enormously by municipality; some markets impose significant development impact fees that can add $5–15 per square foot to project cost.
- Legal: Title work, survey, entity formation, construction contract review.
- Developer fee / overhead: If you're underwriting from a capital perspective, the developer's overhead and profit margin should be represented somewhere in the cost stack.
Contingency
Contingency is not a savings account, it's a risk reserve for things that change between the start of design and the end of construction. Experienced developers typically carry 10–15% of hard costs as contingency. Given the construction cost volatility experienced since 2020, erring toward the higher end is prudent.
Common contingency draws include: soil conditions not identified in geotechnical reports, utility conflicts discovered during excavation, permit-required design changes, material price increases between bid and procurement, and scope additions that emerge during construction coordination.
Lenders typically require evidence of contingency in a construction loan draw schedule. It's a sign of a disciplined underwrite, not a signal of uncertainty.
Timeline: Entitlements to Delivery
Timeline is one of the most underappreciated cost drivers in small bay development. Every month of pre-construction activity carries holding costs on the land, and every month of construction carries interest on the construction loan. A project that takes 18 months from site control to delivery costs meaningfully more than an identical project that takes 12 months.
Typical timeline milestones: 2 to 4 months for entitlement on an already-zoned site, about 12 months for construction, and 6 to 12 months of lease-up to stabilization. Our current Delta Township project carries a 12-month construction schedule and is underwritten to stabilize by the end of year two.
Timeline is accelerated by: sites with existing industrial zoning, municipalities with efficient permitting offices, experienced design teams with reusable plan sets, and developers who move decisively through the design and bid process. It is extended by: rezoning requirements, contested entitlements, complicated site conditions, and permitting backlogs in busy markets.
How the Numbers Work: Cost vs. Revenue
The financial logic of small bay development is straightforward: build a project for less than the stabilized value. Stabilized value is determined by the capitalized NOI (Net Operating Income) at market rents.
For example: if a 20,000-square-foot project generates $10/sq ft in annual base rent from NNN tenants, and expenses (taxes, insurance, management, vacancy reserve) run $2/sq ft, the NOI is approximately $8/sq ft or $160,000 annually. At a 7% stabilized cap rate, the property value is approximately $2.28 million. If total development cost is $1.8 million, the development spread (profit) is approximately $480,000, roughly 27% on cost.
The specific numbers vary by market, rent, cost, and cap rate. The key inputs to track are: total development cost per square foot, achievable NNN rent per square foot, and market cap rate for stabilized small bay product. Dymaxion models these assumptions conservatively and stress-tests for higher vacancy and lower rents before committing to a site.