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How to Move from Residential to Commercial Construction

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With the slowdown in residential construction, many firms might be looking to expand across into commercial projects. Here’s how to make it work.

New codes, new supply chains, new staging, new products and highly competitive tendering are just some of the challenges a residential builder faces when they move into commercial construction.

It’s a learning curve, said Director of Barwise Consulting Kerry Barwise, who leads the Australian Construction Industry Forum industry forecast research. Being flexible and adaptable, however, will help firms make the leap, Barwise explained.

Commercial projects are starting to include large multi-million-dollar mixed-use projects more often, he said. 

A typical mixed-use project will combine apartments and commercial, retail or hospitality tenancies. There are also a growing number of niche mixed-use projects that combine special accommodation, such as retirement living with a medical tenancy, retail and commercial space.

While some multi-residential skills and experience translate directly across, it’s likely the project team will need to bring in trades and suppliers with specialist expertise.

Sime Building and Construction in Western Australia made the shift from residential construction into commercial construction some years ago, and senior management understands what it takes to succeed in new endeavours.  

From the outset there is new information needed, as Sime’s Senior Estimator and Project Manager Peter Ham said, gathering knowledge about new trades and suppliers needs to happen at the tender stage.

With residential building, the quantities, costs and suppliers are similar from project to project and can often be sourced locally, he said. 

Meanwhile, commercial projects may involve obtaining niche products, such as specialist plant items, as well as require producing estimates and costings for tender. 

Supply chains are more likely to extend interstate or even offshore. Thus, the costings may be vulnerable to exchange rate fluctuations.

The specific trades required also vary, he explained. Projects usually also involve a larger cashflow involved, particularly compared to low-rise or detached dwellings.

“The work is very hard to quote, and the tender needs to be very precise,” he said. As commercial building is also highly competitive, adding in a margin for contingencies can actually cost a builder the job.

For residential builders, the relevant parts of the National Construction Code and state building codes will be familiar territory. Commercial building, however, means learning new sections of the code, including Section J energy efficiency requirements, accessibility requirements, new fire protection requirements and lighting rules.

Ham said project architects and the consultants associated with each key part of the building, that is electrical, hydraulic, lighting, façade and structural engineering, will often supply specifications to the builder and key subtrades that incorporate the relevant code details.

However, sometimes the documentation will be less than complete. For that reason, Ham advised builders to familiarise themselves with the relevant requirements so they know what information may be needed.

Staging is also generally different. New methodologies, for instance, tilt-panel prefabricated concrete construction, modular construction, engineered timber construction or unitised facades, may be used.

With a change of scale and methodology, sites also often utilise plant and equipment low-rise residential builders may not have extensive experience with. These include boom lifts and elevated work platforms.

Safety requirements are also more stringent on commercial projects, Ham pointed out. A builder will need to ensure appropriate inductions, toolbox talks, Safe Work Method Statements and other processes are implemented and adhered to.

“Building homes is much easier,” he said.

According to Barwise, there has been a surge in Defence projects and other publicly-funded projects including health, education, stadiums and infrastructure. To successfully tender for these projects, a builder or subcontractor may need to factor in new requirements like having a third-party accredited safety management system, environmental management system and quality assurance system.

Environmental sustainability factors including waste management, building system energy performance, materials footprints and embodied carbon are also becoming fundamental considerations in the non-residential sectors.

In some states, such as Western Australia and Queensland, Project Bank Account arrangements may apply. These alter how subcontractors on major projects are paid.

Barwise said it is builders who may have previously focused on one particular sector, such as townhouses or apartments, that are most likely to struggle for the next year or two.

“In the old days smaller builders and contractors would hop across to shop-fitting [in a downturn],” he observed. However, this may not be the case this time. Activity in retail is slow, so the fit-out work is more likely to be found in hotels, offices and other commercial sectors.

“It is the nature of the built environment—what we are building is changing,” Barwise said. “Builders, architects and designers have to leap into and around different project types and their needs.”

Overall, he said the evidence shows the industry is “pretty adaptable.”

There are also clear signs of growing demand for builders who can demonstrate they are innovative and responsible and can transfer that experience into other sectors and projects. Especially, as blending of building functions is growing in popularity.

“Normal categories are breaking down,” Barwise said. “Almost no-one can build a simple residential tower complex by itself now, it has to be a precinct to get over the line.”

If you liked this article, here are a few eBookswebinars, and case studies you may enjoy:

The Future of Construction Safety

The Future of Project Management for Residential & Commercial Construction

McNab Construction Study

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