The need for consolidated masterplan cost estimation
The Middle East region has seen a significant increase in investment toward major masterplan developments. In most cases, financial viability plays a key role in deciding whether a masterplan development moves from the design stage to construction.
Before a masterplan can progress beyond the vision stage, an iterative process begins of identifying market demands, analysing what built assets are required to meet such demand, evaluating what infrastructure is required to meet the needs of the assets, and then the overall development cost and feasibility modelling.
- Market Demand
- Built Assets Required
- Infrastructure Required
- Cost Estimation
- Feasability Modelling
A key element in ensuring masterplan development is financially viable is minimizing unnecessary spending on infrastructure. A need to activate a site for development, however, not to overburden the feasibility model, is a balance that requires engineering led commercial expertise and extensive coordination between masterplan, engineering and cost consultancy teams.
The accuracy of the masterplan cost estimate is of utmost importance; it involves capturing all necessary elements from a comprehensive review. A precise estimate not only serves as a financial compass, but also contributes significantly to the overall success of the project. It is critical to the viability of the masterplan, paving the way for its seamless progression into the construction phase.
Key considerations for investment in Infrastructure
Ensuring substations, roads, tunnels and highways are suitably sized and utilised.
Adoption of systems, practices which minimise maintenance costs and power/water consumption.
Balancing future proofing infrastructure vs. capacity utlization to avoid heavily loaded initial investments.
Determining appropriate phasing to minimizes disruption through the build out of the development
Understanding the potential revenue from selling activated land parcels.
Minimising the area coverage for infrastructure assets to ensure more land is available for the development of built assets.
Overview of the Masterplan cost estimation process
Masterplan development costs are largely driven by a combination of land area, built-up area, building typology and population. The cost estimation process is an iterative one, requiring ongoing adjustments to achieve the optimum balance of meeting the client need or vision and minimising cost and programme impacts. The masterplan cost estimate should be accompanied by corresponding land use schedules and engineering assumptions to ensure consistency between design and cost.
Once the masterplan is in place, attention turns to the estimation of the capital expenditure (CAPEX). Understanding the financial scope of the project is paramount as it allows stakeholders to gauge the feasibility of bringing the masterplan to fruition. This careful analysis serves as a litmus test, determining whether the project aligns with the available resources and budgetary constraints. Depending on the outcome of the financial model, the above process may recommence with adjustments being made to land use and density to improve the overall development viability.
Cost estimation process:
Informed by market need or vision.
Preparation of spatial framework plan, including Land Use Schedule which defines Asset Mix, Building Areas, Land Areas and Populations.
Using land use schedules and framework plan to understand approximate utility demands, traffic impact and road allocations.
Preparation of overall masterplan development cost estimate
Development costs inputted into feasibility model to determine financial viability.
Key considerations in development viability
Identifying areas to reduce unnecessary cost without impacting on the masterplan vision or potential revenue.
Adjusting asset mixes and densities to focus on assets which provide better financial returns.
Understand commercial tipping points and adjust building areas or typologies to fall below such.
Understand elements which can be funded separately through private investment or shared contribution from stakeholders that may benefit from the masterplan.
Key cost drivers for infrastructure
No masterplan is the same. Each has varying degrees of complexity with several key factors that influence infrastructure cost. These include:
Site conditions - Brownfield vs. Greenfield
The ideal site requires minimal investment to enable its activation for full construction. Both Greenfield and Brownfield sites have their potential opportunities and challenges which may impact on financial viability.
In each masterplan, a cost estimate of the required enabling works is calculated first. This is often a construction package that is tendered prior to completing the remaining infrastructure design, and often therefore the first cost that will be market tested.
Whilst Brownfield sites can add cost premiums for demolitions, diversions and logistical challenges, they may provide benefits in having established infrastructure beyond the development boundary. This may include utilities plant and equipment being present that can be tapped into.
Asset mix
Asset mix heavily influences utility, traffic demands and resulting infrastructure costs. Understanding these demands can support in the early sizing of infrastructure components and associated cost in the absence of a developed design.
Development density
Development density plays a role in maximising development plots and justifying the cost of infrastructure.
Whilst increasing density results in greater load demands on utilities and roads, these are concentrated and increase development efficiency - reducing the need for long road and utility networks.
The greater the development density the more assets there are to spread the burden of infrastructure cost, resulting in a lower cost per m2 of GFA as a contribution to infrastructure.
Development phasing
Development phasing is necessary to ensure alignment with both market demands, contractor capacity and/or potential budget constraints. Phasing may also be influenced by the extent of which a masterplan lead developer wishes to construct and retain assets, against that they may want to sell to third party developers.
Under a scenario where a master developer is responsible for undertaking primary infrastructure with the intention of selling land parcels, development phasing should consider limiting the master developer’s exposure by ensuring the spend on land activation is quickly recovered with land sales.
When phasing is considered for a development, it is important that the infrastructure required to be developed in the early phases is carefully assessed, as these early phases will often require a greater percentage CAPEX contribution to the overall infrastructure cost than later phases of the development.
Sustainability objectives
With a drive to more sustainable development, many masterplans now include specific targets or KPIs relating to specific infrastructure assets. Examples of these KPIs include:
- Onsite renewable generation targets – defining a specific percentage of which power needs are served onsite by renewable technologies.
- Water balancing targets – ensuring sewage generation and the resulting treated sewage effluent is in line with the irrigation demands of the development.
- Sufficient public realm – ensuring a minimum target for green space per person.
- 15-minute cities – ensuring residents have accessibility to all needs within a given distance.
- Carbon reduction initiatives.
- ‘Green certification’ such as LEED.
Compliance with local sustainability legislation or goals.
Surrounding infrastructure availability
The scale and phasing of masterplan developments are often determined by the availability of surrounding infrastructure. Limitations on such can result in the requirement for significant investment in roads, connectivity and utilities to service the masterplan development. Wherever possible, major interventions should be avoided as they both can influence development viability and delay construction activity.
Commercial tipping points
Consideration needs to be given to key commercial tipping points. Triggering these tipping points can result in a sudden spike in cost. For infrastructure the three main areas in which tipping points exist are as follows:
Substation capacities and electrical connection contributions Primary substations tend to have standard loads and capacities in line with authority standards. Restrictions exist on compartmentalisation.
A primary 132Kv substation in the Middle East will vary between USD 30m to USD 40m. If a masterplan is of a scale that requires one or more primary substations, it may be worth considering adjusting the building built areas and usages to either reduce or increase load demands and ensure primary substations are effectively utilized. Staying below the threshold of requiring a new substation could save significant cost and free up more land for development (approximately 100m x 50m).
Centralised versus localised cooling If a number of built assets are concentrated in a given area, the cooling strategy may lean towards centralized or district cooling. A high density development requires relatively short pipework distribution with high cooling loads. In contrast, low density developments, which are spread across a development site, may lend themselves to a more localized cooling solution. Further consideration should be given to the cooling medium, water cooled technologies are known to require less power than air cooled technology, but result in increased water requirements.
Traffic impact Land use typologies have different traffic demands. Traffic trip rates determine the size and number of road lanes required. Understanding trip rate impacts can ensure that additional road lanes are not required, which again can provide more land for asset parcels.
How can AECOM’s Program Cost Consultancy help?
The feasibility of a masterplan is inherently tied to its financial viability. Infrastructure costs play a pivotal role in this equation, acting as an early test for the project’s feasibility. By conducting a thorough cost analysis, stakeholders can assess whether the envisioned infrastructure aligns with the available budget and resources. This process mitigates the risk of embarking on projects that may prove economically unsustainable in the long run.
AECOM has a team of dedicated masterplan infrastructure cost consultants who are engaged from visioning/pre-concept stage through to detailed design and construction. The team often act as coordinators between masterplan, infrastructure engineering and feasibility teams to ensure alignment. The team specialises in providing commercial expertise and this allows developers to make key informed decisions on infrastructure investment.