Construction Economics - Essay Example

2.0 Basis of the Report and Assumptions The report is based on the relevance of cost benefit analysis in determining the feasibility of a project. It is assumed that the developer is aware of the prevailing market rates but is not conversant with the costing strategy that can match the rates. The essence of this report is therefore to recommend the actions on whether the project is viable or not depending on the cost benefit analysis results (Schmitt, B., 2007). 3.0 Site Location Information The construction site is located in London, towards the south east of England.

It has a conglomeration of retail constructions, residential and commercial properties. The environment is well developed and the area has easy accessibility to the center of London City. The plan is to have the ground floor as a shell for tenants who intend to rent to fit them out to their suitability. The rest of the floors will be for multipurpose businesses. Figure 1: Rental Units in the Commercial area Figure 2: Rental Units in the Residential Area 4.0. Market Conditions Affecting Value The construction site is in a prime area.

The demand in the area for real estate properties is so high in the area pushing the cost of acquisition and development of the plot to go up. . assessment, the competition from other developers in the area could be a challenge however setting competitive rates will be advantageous to the business (Schmitt, B., 2007). Also the inflation rates in the real estate property market could be a challenge however with the stability in the market the rates could be manageable to the stakeholders. Using the same assumptions, the future demand may be unbearable but the value of the project may be a great advantage to the stakeholders in the future.

The high demand for land in the area and the continued rising rates is propelling the already high costs. 5.0 Developers Budget 5.1. Development Cost The cost of development at the present market value covers the cost of acquisition of the site together with the cost of labor and construction materials. The budget for the development is as follows: Demolition: ? 150,000 Planning costs and fees, including s.106 agreement – upgrading infrastructure: ? 250,000 Site surveys: ? 25,000 Construction costs: Infrastructure: ?

273,000 Landscaping: ? 15,000 Structure: ?1,100/m2 Extra for office floors: ? 550/m2 Extra for residential floors: ? 650/m2 5.2. Expected return Out of the budget, the return from the rental units will determine whether the expenses are higher than the earnings or less. The present market rates for residential property units will earn about ?500 per month, coming to about ?6000 per unit per month. For the 7 rental units available, the total earning will be ?42000 per year. For every office unit, the project will earn about twice that of residential units, which is about ?

84, 000 per year. Parking will be expected to earn about ?10000 per year, making the total annual revenue a consolidated estimate of about ?136000 per year. With the continuous growth in market