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Crain’s New York

Natalie Sachmechi, 10.13.20

The city’s construction industry will lose nearly $11 billion by Christmas because of the pandemic, according to a new report by the New York Building Congress.

Once projected to reach $66 billion for the year, spending on building will settle at $55.5, the analysis found.

Factors such as the three-month shutdown on nonessential construction, the financing troubles and a hesitation to start projects have sent a chill through the industry. Projected spending will drop 8.5% below last year’s $60.6 billion and settle to 2017’s record-breaking levels, the trade group said.

“When everything happened back in March, I thought we were going to go down to $40 billion,” said Carlo Scissura, the president and chief executive of the Building Congress. “The fact that we’re in the mid-50s is to me a very pleasant surprise.”

The future of construction

Jobs: Employment will drop by 14% this year.
Spending: At $55.5B, total spending will be 8.5% less than last year and $11 billion less than this year’s projections.
Residential projects: Builders will spend $2B less this year than they did in 2019.

It won’t be all rainbows for builders moving forward. Spending will crawl up to $57 billion in 2021, the report found, but then dip to $56.1 billion the year after, a crucial year for recovery.

With projects in the pipeline now on track to finish in 2021, there won’t be much going on in 2022 if the city doesn’t see major investment from the federal government, Scissura said.

Similarly, if tourism doesn’t recover by then, there won’t be any hospitality spending.

A $400 million increase in government spending this year will prop up the industry, the group found. Between now and 2022, public infrastructure projects from agencies such as the MTA and the Port Authority will account for 40% of total spending, up from the 31% share they took between 2017 and 2019, according to the report.

Notable projects include billion-dollar renovations at Penn Station and LaGuardia Airport.

The city itself has allocated $11.8 billion to its capital plan–31% for city operations and facilities, 23% for education, 22% for environmental protection, 12% for transportation, 10% for housing and economic development, and 2% for the administration of justice.

Private spending, on the other hand, is faltering. Residential construction will total $17.8 billion by year’s end compared with $19.7 billion last year while nonresidential projects will drop to $16.6 billion from $21.1 billion.

The future of residential investment remains a question mark, Scissura said. The projections assume that the city’s population will continue to decline, and there are many factors that will determine how many more people leave. In the next two years, 50,450 new residential units are expected to enter the market, the report said.

“This is a perfect moment to jumpstart Hudson Yards and commit to building residential there,” Scissura said. The pending SoHo and Gowanus rezonings also could add thousands of units of residential in coming years, he said.

Jobs will decline by 14%, the report showed, thanks to the decrease in overall spending. The total amount of city construction jobs is forecast to drop to 128,200 this year, slightly below 2014 levels. Employment will begin to bounce back in 2021 and 2022, to 136,650 and 140,200 jobs, respectively.

The Building Congress also surveyed its members to gauge their confidence in the future of construction in the city. Overall the majority reported a low level of confidence that the market will offer new business opportunities in 2021 and 2022.

They were particularly pessimistic about residential and office construction, with 67% and 68% of members, respectively, reporting low or very low confidence. They were the most confident in the institutional construction market (health care, education, cultural), with 37% having either a high or very high level of confidence.

Scissura said the city’s focus should be on planning projects in the next few years and making sure the pipeline never goes dry.

“Our hope is that these numbers can even go up by next year,” he said, adding: “Yes, we’re down from what we predicted, but no, the world is not ending.”

Published on

Oct 13, 2020 by New York Building Congress