March 19, 2025
When planning a commercial property project in Texas, several expenses require careful attention. A major cost is what many refer to as impact fees—also known as development fees, infrastructure fees, public improvement fees, or exactions. These charges can affect project budgets, feasibility, and long-term returns. For investors and developers, knowing what impact fees are, how they are determined, and the part they play in the Texas market is key. Today, we will break it down for you, let’s go!
Think of these fees as contributions new developments make to help cover the cost of expanding and maintaining public infrastructure. That means as new commercial or industrial projects pop up, local governments collect fees to improve roads, utilities, water and sewer systems, and even public safety services. In Texas, this process is regulated under
Chapter 395 of the Texas Local Government Code. Essentially, development fees make sure that new growth helps pay for the extra strain on local services, rather than leaving existing taxpayers to foot the bill.
Impact fees are more than just an extra line item on a budget, they can significantly influence the upfront costs of a project. For example, in cities like Austin, infrastructure fees for commercial projects have been reported to range from $3 to $5 per square foot, while in other areas or suburban regions, you might see fees closer to $2 per square foot. Knowing these figures early on helps developers plan better and avoid unwelcome surprises later.
While it might seem like exactions just add extra expense, they also fund important infrastructure improvements. Better roads, utilities, and services make commercial properties more attractive to businesses and tenants, which can boost property values over time.
Not every Texas city charges the same. Some places have higher fees than others, and this can really influence where you decide to build. Developers need to weigh these costs when choosing a location, as they can impact overall profitability. Plus, some major Texas cities generate substantial revenue from these exactions—sometimes reaching into the tens or even hundreds of millions of dollars annually—which underscores just how significant the fees are to local infrastructure funding.
Believe it or not, there’s sometimes wiggle room with development fees. If your project is going to create jobs or deliver essential services, local governments might offer incentives or even waive some of the fees. It never hurts to have a chat with city planners!
The cost usually depends on a few factors:
Local governments typically use land-use studies and capital improvement plans to set these fees, ensuring they’re fair and based on actual needs. And if a fee seems too high, developers do have the right to question it.
Let’s look at how impact fees vary around the State:
Austin has experienced significant population and business growth over the years. This increase in demand for services and infrastructure has led local authorities to impose higher fees. These charges help pay for new roads, public utilities, and emergency services. Projects in Austin may incur higher initial expenses compared to other parts of the state.
Houston follows a different model by imposing fewer direct public improvement fees on new projects. The city frequently partners with private sector entities to support infrastructure improvements. This arrangement reduces the direct fee burden on developers while still providing funding for public services, potentially offering a more favorable fee structure for various developments.
Both San Antonio and Dallas have established fee systems that reflect the needs of their different service areas. In these cities, fees are determined by factors such as project size, the anticipated impact on local services, and other relevant criteria. This consistent framework allows for predictable planning and balanced contributions across different neighborhoods.
Here are some friendly tips for managing infrastructure fees:
Impact fees might seem like just another bureaucratic hurdle, but they’re actually a crucial part of making sure that
Texas’s infrastructure can keep up with growth. At CIP Texas, we see firsthand how these fees play a role in shaping the commercial real estate landscape. While they add to the cost at the start, they also help build better, more sustainable communities that benefit everyone in the long run.
If you’re planning a project and want to navigate these waters with a bit more confidence, we’re here to help. Reach out to us, and let’s work together to develop smarter and more profitably in Texas!
