January 4, 2008

Bad News for Builders is Good News for You

The media is having a field day with the latest economic figures released by the government. All the business commentators are talking about the country going into an economic slow-down (no one wants to use that bad word "recession" just yet).

They love to sound the alarm and play on the public's fears. It's good for ratings. When housing starts slow and home prices slide backwards the construction industry is the first to feel the pinch. People start cutting back their spending because of the bad news, and sure enough, the economy slows. Many practitioners see their numbers drop and start crying the blues, blaming it all on the economy.

However, well-prepared practitioners have nothing to fear. If you have had a good marketing program going all along, you might have to turn up the heat a bit to keep on the same growth curve. If you have no regular marketing program or if you just do it hit or miss, you could be in trouble with no quick way out.

Getting a good marketing program in place takes time. It requires testing for results and then tweaking to make improvements gradually. When you first start out with a new plan it's like the flywheel on an engine. It takes a lot of effort up front to get it spinning, but once it gets going it has momentum on its own. The time to get it in place and working is before the economy gets rocky.

Successful people don't sweat it when the real estate market and the construction industry are down. That usually means interest rates are down too, so they can see opportunity where others see lack.

What are smart practitioners doing these days? They're out finding new space to lease or buying an existing building or land for a new building. Contractors have had a long run of fairly good times and high construction prices in the last few years, but now that's all changed in most parts of the country.

For people who have all their ducks in a row this is a great time to build a new office. Contractors don't have as much work as they used to, so there is more competition for the work that there is and bids are lower. That's good news for the customer.

Let the rest of the world run scared. If you have worked hard to make your practice successful and are ready to take a step up, 2008 could be the perfect year to build the new office you've been wanting!

Construction Costs - Reality vs. Wish

When people call me to talk about building a new office, one of the questions I ask is, "How much per square foot have you budgeted for construction?" The answers mostly range from "I don't know" to $50 per square foot, which is way too low for an all-new interior build-out.

My rule of thumb for estimating construction costs is to figure $100/SF or more for interior only projects. If a client budgets for that amount and it comes in under, then we celebrate. For new buildings you can figure $250 per square foot or more.

Florida is one of the most expensive places to build, topped only by California and New York.. The last project I did in Florida, which was completed in the spring of 2007, came out to $125/SF. And that was for a very simple, no-frills design!

When you are planning a new practice you need to be informed on the realities of construction and design costs. People in the midwest and rural areas like West Texas can often get their construction done for less. But just about anywhere on the East Coast or West Coast it's always higher than you thought it would be. I'm hoping that my projects that are going out for bid in the next month or two will come in for less than last year's average. That's because there's less construction going on and more competition among the contractors now at the start of 2008.

You have to keep in mind that we work almost exclusively with clients in zip codes where at least two out of the top five lifestyle groups have a median income of $75K or more. When all the median income figures fall below $50K, we may not be the right design firm for the project. We don't go overboard with expensive finishes, but we do design to high quality standards that perform well for our clients for 15 to 20 years or more. Quality does not come cheap.

The point is you must do a lot of planning and research when it comes to opening a new practice or moving your existing one. Make sure you get realistic average construction cost figures for your area. If you are going into a higher income area that fits our profile, you can call me and I'll tell you what the latest "BWD Construction Cost Index" is.

Don't be discouraged if the numbers don't look like they will work out the first way you try. You may have to look for a smaller space or a place with lower rent. If you want to attract higher income patients, you can't skimp on construction costs, but there may be another strategy you can employ to make your project work.