An elemental cost plan for a 12 m clear distribution unit, how the rate moves with size and height, and the gap between construction cost and total development cost.
Build a warehouse up from its elements and an illustrative 20,000 m² unit at 12 m clear costs about 556 per m² of gross internal area to construct, roughly 52 per sq ft, including preliminaries and contingency. Add land, fees, finance and letting costs and the all-in development cost is 997 per m², so the construction figure alone covers only 55.8 per cent of what the developer actually spends.
Worked in full in Logistics and Industrial Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
"What does a warehouse cost to build?" gets answered with a single rate per square metre, usually from a cost consultant's index. The rate is useful only once you know what is inside it, how it moves with size and height, and what sits outside it. The figures below are illustrative rates, not market data: replace each with your own quantity surveyor's and the structure of the answer holds.
A single-storey unit of 20,000 m² on a 4.0 hectare site, footprint 200 m by 100 m, clear internal height 12.0 m and eaves at 13.5. One dock door per 1,000 m², so 20 docks at 25,000 each, 1,000 m² of two-storey offices at 1,600 per m², and 12,000 m² of yard and parking at 70 per m².
| Element | Basis | Cost | Per m² GIA |
|---|---|---|---|
| Substructure and ground slab | 95 per m² | 1,900,000 | 95 |
| Steel frame | rises with height | 1,400,000 | 70 |
| Roof | 60 per m² | 1,200,000 | 60 |
| Wall cladding | 8,100 m² of wall at 85 | 688,500 | 34 |
| Dock doors and levellers | 20 at 25,000 | 500,000 | 25 |
| Offices and amenities | 1,000 m² at 1,600 | 1,600,000 | 80 |
| Mechanical, electrical, sprinklers | 75 per m² | 1,500,000 | 75 |
| Yard, parking, externals | 12,000 m² at 70 | 840,000 | 42 |
| Subtotal | 9,628,500 | 481 | |
| Preliminaries | 10% | 962,850 | 48 |
| Contingency | 5% | 529,568 | 26 |
| Construction cost | 11,120,918 | 556 |
Construction per m² = (Σ elements × (1 + prelims)) × (1 + contingency) / GIA
9,628,500 × 1.10 = 10,591,350; × 1.05 = 11,120,918; / 20,000 = 556 per m². Divide by 10.7639 for 51.66 per sq ft. In Excel: =SUM(C2:C9)*(1+10%)*(1+5%)/20000.
Two lines are geometry, not rates. Wall cladding is perimeter times eaves height, 600 m by 13.5 m, so its cost per m² of floor falls as the building gets bigger: a box four times the size has only twice the perimeter. The frame, the cladding and the sprinklers all rise with height. That is why one "rate per m²" cannot be carried from a 5,000 m² unit to a 40,000 m² one.
| Item | Basis | Cost | Per m² GIA |
|---|---|---|---|
| Construction | above | 11,120,918 | 556 |
| Professional fees | 10% of construction | 1,112,092 | 56 |
| Land | 4.0 ha at 1,500,000 | 6,000,000 | 300 |
| Land acquisition costs | 6.8% | 408,000 | 20 |
| Finance on land | 7% for 18 months | 672,840 | 34 |
| Finance on build | 7%, half drawn on average, 12 months | 428,155 | 21 |
| Letting fees | 15% of the 1,360,000 rent | 204,000 | 10 |
| Total development cost | 19,946,005 | 997 |
At an illustrative rent of 68.00 per m², 1,360,000 a year, the yield on cost is 1,360,000 / 19,946,005 = 6.82 per cent. Capitalised at a 5.75 per cent exit yield the completed unit is worth 23,652,174, a profit of 3,706,169, or 18.6 per cent on cost. The 107 basis points between yield on cost and exit yield is the developer's margin, and it assumes the unit lets on completion; the article on how long a speculative warehouse can stay unlet prices what happens if it does not.
| GIA, m² | 10.0 m clear | 12.0 m clear | 15.0 m clear | Cladding per m² at 12 m |
|---|---|---|---|---|
| 5,000 | 578 | 596 | 622 | 69 |
| 10,000 | 558 | 573 | 594 | 49 |
| 20,000 | 544 | 556 | 574 | 34 |
| 40,000 | 534 | 544 | 559 | 24 |
Going from 12 to 15 m clear on the 20,000 m² unit adds 17 per m², 3.1 per cent, while clear height, and with it the storage volume under the haunch, rises by 25.0 per cent. Height is the cheapest volume a developer can build, which is why occupiers pay for it, though not, as the cube-parity argument shows, in proportion.
Small units carry a double penalty: more cladding per m² of floor, and usually a larger office share. Multi-let estates of 2,000 to 5,000 m² units cost visibly more per m² than a big box on the same rates, before any difference in specification.
Before comparing a quoted rate with this build-up, ask four questions. Is it per m² of gross internal area or of footprint, which differ once there are mezzanine offices? Does it include externals and the yard, 42 per m² here, or only the building? Are preliminaries and contingency inside it, together about 75 per m² on this unit? And does it assume the same clear height and the same dock ratio? A rate that answers none of them cannot be compared with anything.
Quoting the construction rate as the cost of the warehouse. Here it is 556 per m² against 997 all-in: the full cost is 1.79 times construction. A developer who divides rent by construction cost alone sees a 12.23 per cent yield and a project that cannot fail; the true yield on cost is 6.82. Land is 32.1 per cent of the total on this site, and in a supply-constrained location it can exceed construction.
Build the rate from its elements, let geometry carry the size and height effects, then add land, fees, finance and letting before you compare cost with value: 556 per m² to build, 997 to deliver, 6.82 per cent on cost on this illustrative unit. The development sheet in the free workbook for this case takes the same structure through the letting decision and the land value it supports.
Because wall area grows with the perimeter while floor area grows with its square. On the same illustrative rates, cladding costs 69 per m² of floor on a 5,000 m² unit and 24 on a 40,000 m² unit, which takes total construction from 596 to 544 per m² at 12 m clear. Small units also tend to carry a larger office share.
Less than the volume it adds. On a 20,000 m² unit, raising clear height from 12 to 15 m adds about 17 per m², 3.1 per cent of construction cost, through a heavier frame, more cladding and sprinkler changes, while clear height, and with it the usable storage volume, rises by 25.0 per cent.
Construction covers the building, externals, preliminaries and contingency. Total development cost adds land and its acquisition costs, professional fees, finance and letting fees. On this illustrative unit construction is 556 per m² and the total 997, so construction is 55.8 per cent of the spend and the yield on cost is 6.82 per cent, not 12.23.
This article is one calculation from Logistics and Industrial Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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