You’ve found the perfect office space, in the desired location, at the exact rental rate that fits your budget. But now it’s time to begin the construction process to bring your perfect office to life.

You’d love to hire a project manager to represent you and your company throughout the construction process, but how much is that going to cost?

In short?

That depends.

On what?

Well, that’s what we’ll delve into in this article.

At AQUILA, we meet with numerous clients just like you every week and help answer questions just like these. We understand this can be confusing, so in this article, I’ll share with you how project management fees are structured and what factors can impact your final project management cost below.

 

What is a Project Manager?

The project manager acts first-and-foremost as the tenant or owner’s representative throughout the life cycle of a project. Although sometimes referred to as a construction manager, the project manager’s responsibilities span far beyond just the construction process.

The project manager oversees all elements of a project, from budgeting to occupancy, and will manage all of the contractors involved with the project, including the general contractor, the architect and design team, the engineering firm and more.

 

The Three Project Management Fee Structures

Often, large companies with in-house real estate teams and offices across the country may supply their own agreement terms.

However, when a client looks to the project management team to supply the terms of service, there are three standard approaches that nearly all project management firms will honor.

It’s important to note that fees vary market to market and estimates below are based upon market standards in Austin, Texas.

1. Percentage of the Project Cost

This is the most common payment structure for project management contracts. In this scenario, you will pay a predetermined percentage of the total project cost. The project cost is the combined sum of the hard cost (the value of the construction contract) and the soft costs (the architect and engineer fees, cabling, permitting, and more). This is similar to the way you would pay an architect and engineer, both of whom typically charge between 8 – 12% of the total project cost.

Cost to Hire a Project Manager | Percentage Based Fees

Tenant Improvement/Office Renovation Projects

For most office renovations and tenant improvement (TI) projects, a reputable project management firm will charge between 3 to 5%.

So what affects whether you’re on the low or high end of this spectrum?

Generally, this scale slides depending on the total anticipated project cost: the higher the project cost, the lower the rate. However, no matter how small the project, the rate should never exceed 5%.

For reference, the chart below breaks down what typical project fees would be for TI/renovation projects, depending on project cost.*

Project Cost Estimated Fee Percentage
Up to $2 million 5%
$2 – 5 million 4%
$5+ million 3%

*These numbers are an estimate and may vary on a case by case basis, due to scope, timeline or special circumstances

Ground Up Construction

With larger projects, such as ground up construction, fees can be even smaller.

For reference, the chart below breaks down what typical project fees would be for ground up construction, depending on project cost.*

Project Cost Estimated Fee Percentage
Up to $10 million 4%
$10 – 50 million 2.5%
$50 – 100 million 2%
$100+ million 1.5%

*These numbers are an estimate and may vary on a case by case basis, due to scope, timeline or special circumstances

Gerson Lehrman Group Modern Office in Austin, Texas

The Gerson Lehrman Group office at 301 Congress is an example of a large scope office renovation project in which the AQUILA Project Management team represented the tenant throughout their TI project.

2. Fixed Monthly Cost

At the request of the client, project managers will sometimes structure their fees as a fixed monthly cost.

In this situation, the project manager will look at the timeline and the scope of the project in order to estimate the hours per month his team will spend on the project and charge a set fee based on this number.

Project Management Fee Calculation

This hourly fee can vary drastically, depending on the size and scope of your project. Typical fees can range from $1,000 – $20,000 per month.

3. Cost Per Square Foot

The third option for structuring project management fees is a per square foot cost. In this case, the project manager will charge a fee per square foot, based on the total project cost. Typically, in Austin, this fee will range between $1.50 – $3.50 per square foot.

Again, this option is typically only employed at the request of the client.

In this situation, the higher the project cost per square foot, the lower the project management fee per square foot will be.

Cost Per SF Project Management Fee Structure

For reference, the chart below breaks down what typical project fees would be for cost per square foot construction.*

Project Cost Estimated Fee Per Square Foot
Up to $500,000 $3.50
$500,000 – $2 million $2.50
$2 – 5 million $1.00
$5+ million $0.50 – 0.75

*These numbers are an estimate and may vary on a case by case basis, due to scope, timeline or special circumstances

 

When do I have to pay the Project Manager?

No matter which fee structure you agree upon with your project management team, payment schedules will be structured the same way.

First, the project manager will calculate the lump sum total of the project management fees owed.

These fees will then be divided and billed as equal monthly payments over the course of the project.

At the client’s preference, sometimes billing will not begin until construction has kicked off, meaning that you will not be billed during the pre-construction process (including design, permitting, etc.). This option does not change the total amount due, but will simply result in a higher monthly bill over a shorter period of time during the construction process.

 

Besides fees, are there any other costs associated with hiring a project manager?

While typically there are no additional fees associated with hiring a project manager, there may be a few special situations in which additional costs may arise.

Your project management firm will include a clause in their contract that either states a “not to exceed” estimate for these reimbursables or that states that they will receive written approval from you before incurring any additional expenses.

Third Party Consultants

Should the client request that a third-party consultant be brought in, the project management team may be tasked with hiring these consulting directly and then charge the client for reimbursement as a part of the typical billing cycle.

These consultants may include permit expediters, TDLR review, sound consultants, etc. However, in most situations, these consultants are typically included underneath the architect’s proposal as a third party consultant.

Travel Expenses

While it is not standard for a project manager to charge you for local travel, they may require reimbursement if a need arises to travel out of town or out of state for site visit, meeting or presentation. In these situations, the project manager may require reimbursement for these travel expenses, including mileage, airfare and/or hotel costs.

 

What will my total project cost be?

There are many factors that can impact the total cost of your office renovation or build-out.

  • Square Feet: The size of your project will be a major factor in your project, as both materials and labor are often calculated on a per square foot basis.
  • Construction Type/Scope: Is this a ground-up construction project, a renovation of an existing office space or a build-out of shell construction? All other factors being equal, a renovation or shell build-out is going to be less expensive than ground-up construction. The economics of a build-out of a shell space vs. the renovation of a second generation office space can vary on a case to case basis.
  • Level of Finish Out: Are you looking to outfit your space like the Taj Majal? Or do you have a more cost effective build-out in mind? The cost of the design and materials you choose are going to have a big impact on your final project cost.
  • Timeline: While this is typically tied to the scope of the project, the time spent on a project can impact the cost as well. Obviously a year-long project is going to come with a higher bill than a quicker project, but a rush job can come with its own premium as well. Your project manager will be able to guide you through this and ensure that your project timeline is efficient and fits your needs.

The bottom line is that your project management fees are going to be based on the size and scope of your specific project. Don’t let this scare you off, however, as a successful project manager is going to save you more on your total project cost than their fees.

The AQUILA project management team has decades of experience in the Austin market and is ready to help guide you through your next office renovation, TI project or ground-up build. If you have any questions about this or any other services AQUILA offers, request a consultation today.

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Todd Tebbe | Commercial Real Estate Project Management in Austin, Texas | AQUILA Commercial

Todd Tebbe

Todd is rock solid reliable. When Todd’s on the job, you know it will get done – and get done right. He is a Principal and the founder/leader of AQUILA’s Project Management team.


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