Construction projects represent some of the largest financial commitments any business or investor will make. Whether it's a commercial building, residential development, industrial facility, or infrastructure project, the costs run into the millions and the consequences of a flawed analysis can be catastrophic.
A construction feasibility study evaluates whether a proposed building project is viable from technical, financial, and regulatory perspectives — before a single dollar is committed to design or construction.
Why Construction Projects Need Feasibility Studies
Construction has a unique risk profile. Once you begin building, stopping or changing direction is enormously expensive. Design changes during construction can cost 5–10x what they would have cost during planning. Materials ordered can't always be returned. Contractors have contractual commitments. And the project generates zero revenue until completion.
This means the feasibility study is your last opportunity for a cost-effective course correction. Getting it right saves millions; getting it wrong — or skipping it — can mean financial ruin.
Core Components
1. Site and Regulatory Analysis
Zoning Compliance: Does the site's zoning permit the intended use? Residential, commercial, industrial, and mixed-use zones each have specific allowances and restrictions. Rezoning is possible but adds 6–18 months and significant cost with no guarantee of approval. Building Codes and Standards: What construction standards apply? Fire ratings, accessibility requirements, energy efficiency standards, and structural codes all affect design and cost. Environmental Considerations: Is the site contaminated? Are there protected species, heritage overlays, or flood zones? Environmental remediation can add $50,000–$500,000+ to project costs. Permits and Approvals: What approvals are needed and how long will they take? Development approval, building permits, environmental permits, and infrastructure agreements all have timelines that affect project scheduling.2. Cost Estimation
Construction cost estimation is both art and science. Your feasibility study should include:
Hard Costs: Direct construction expenses including site preparation, foundations, structure, envelope (walls, roof, windows), services (mechanical, electrical, plumbing, fire), interior finishes, and external works. These are typically 60–70% of total project cost. Soft Costs: Design fees, engineering, project management, legal, permits, insurance, and finance costs. Typically 15–25% of total cost. Land Cost: Acquisition price plus transaction costs. Varies from 10–40% of total project cost depending on location. Contingency: An allowance for unforeseen costs and scope changes. The appropriate contingency depends on project stage — 15–20% at feasibility stage, reducing to 5–10% at detailed design. Current Construction Cost Benchmarks (approximate):| Building Type | Cost per sqm (AUD) |
|---|---|
| Basic warehouse/industrial | $800–$1,500 |
| Standard office fit-out | $1,500–$3,000 |
| Residential apartments (standard) | $2,500–$4,000 |
| Retail/hospitality | $2,500–$5,000 |
| Premium residential | $4,000–$7,000 |
| Healthcare/medical | $4,000–$8,000 |
| Luxury hospitality | $5,000–$12,000+ |
These benchmarks vary significantly by location, market conditions, and project specifics. Your feasibility study should use location-specific data and adjust for current market conditions.
3. Timeline Analysis
Construction timelines directly affect financial feasibility through finance costs, opportunity costs, and revenue timing.
Pre-Construction: Design, approvals, and procurement: 6–18 months depending on complexity and regulatory requirements. Construction: Actual building period: 8–24 months for most commercial projects. Post-Completion: Lease-up or sales period before the asset generates full revenue.Every month of delay adds finance costs (interest on drawn capital), extends the payback period, and reduces IRR. A 6-month construction delay on a $10 million project with 7% construction finance costs adds approximately $350,000 to the total cost.
4. Financial Analysis
Project Return Metrics:For build-and-sell projects: Development margin (revenue minus total cost as a percentage of cost), NPV, IRR, and peak equity requirement.
For build-and-hold projects: Net operating income, capitalisation rate, cash-on-cash return, debt service coverage ratio, NPV, and IRR based on long-term cash flows plus terminal value.
NPV should be calculated over the full project lifecycle — from land acquisition through construction to either sale of completed product or stabilised operation of the asset.5. Risk and Sensitivity Analysis
Cost Overrun Scenarios: Test 10%, 20%, and 30% construction cost increases. What's the impact on margin, NPV, and IRR? At what cost overrun level does the project become unviable? Revenue Risk: What if sale prices are 10% lower than projected? What if lease-up takes twice as long? What if rental rates are below current market due to new supply? Timeline Risk: What if construction takes 6 months longer? Calculate the additional finance costs and reduced IRR. Interest Rate Risk: If construction finance is variable rate, what happens if rates increase by 1–2% during the build?The Bottom Line
Construction projects are defined by large upfront commitments, long timelines, and multiple compounding risks. The feasibility study is your primary defence against these risks — it quantifies the opportunity, stress-tests the assumptions, and identifies the conditions under which the project succeeds or fails.
SimpleFeasibility generates construction feasibility studies with detailed cost estimation, timeline modelling, multi-year financial projections including NPV/IRR/payback, and interactive sensitivity analysis to test cost overrun and revenue scenarios. Analyse Your Construction Project →Related Articles: