New York City Construction Spending Forecast to Reach $33.8 Billion in 2008 and $93 Billion Over Three Years, According to New York Building Congress Construction Outlook

NEW YORK, October 14, 2008 – For the second time this decade, New York City’s construction industry has proven its resilience while helping to bolster a struggling local economy, according to New York City Construction Outlook 2008-2010, an annual forecast and analysis prepared by the New York Building Congress.   The report was released today at a Construction Industry Forum featuring New York City Planning Commission Chair Amanda M. Burden and New York City Economic Development Corporation President Seth W. Pinsky.

The industry continues to generate billions in new spending and thousands of new jobs.  The New York Building Congress forecast currently calls for $93 billion in overall construction spending in the five boroughs by government, businesses and institutions from 2008 through 2010.

Overall construction spending in 2008 is forecast to reach a record $33.8 billion, a 16 percent increase from 2007 when spending reached $29.1 billion. Spending is currently forecast to reach $33.4 billion in 2009 before easing to $26.2 billion in 2010.

“Given the ongoing turmoil in the credit markets, a slowing economy and warnings of growing budget deficits, I am pleased to report that construction spending is expected to increase again in 2008 and, based on ongoing projects, could continue to be strong in 2009,” said Building Congress Chairman Stuart E. Graham, who is also Chairman of Skanska, USA.  “With the industry poised to set new records for overall spending and employment in 2008, we expect to defy the odds once again and maintain our status as one of the region’s strongest economic engines.”

Mr. Graham added, “Of course, New York’s construction industry is not immune to downturns in the regional and national economy.  While it is too early to assess how recent developments in the financial markets and resulting actions by the Federal government might impact the numbers through 2009 and beyond, it is certain that the City’s economy will be further affected by recent losses on Wall Street and the continued tightening of the credit markets.”

Construction employment, which reached 127,000 in 2007, will peak at a record 130,100 workers in 2008.  Total construction employment in 2009 may hold relatively steady at 128,300.  However, an estimated drop in construction employment to 100,250 is expected in 2010. If realized, this would mark the smallest industry workforce since 1997.  Of even greater concern is the potential for further declines in employment starting in 2009 and 2010 if recent economic events lead to a significant downturn.

Sector Breakdown
Government projects remain the largest source and primary driver of construction activity in New York City.  The Building Congress estimates that overall capital spending, which includes investments in mass transit, public schools, roads, bridges and other essential infrastructure, will reach $17.0 billion in 2008, up from $15.8 billion in 2007 and $11.6 billion in 2006.  Based on a review of current capital budgets and projected expenditures, spending in this sector may rise to $17.4 billion in 2009 before dropping to $14.4 billion in 2010.

For the fourth consecutive year, residential construction is forecast to exceed 30,000 new dwelling units in 2008.  This level of work continues a remarkable trend for New York City, which did not produce more than 20,000 units annually from the 1990s through 2002.  The Building Congress forecasts production of 35,700 units this year with a total construction value of $6.8 billion.  This is up from 31,900 units ($5.3 billion) in 2007.

This spike is partially explained by a push from residential developers to get new projects started prior to a July 1, 2008, change in the 421(a) tax incentive program.  The forecast calls for 20,285 units ($4.4 billion) to be produced in 2009 followed by 18,500 units ($4.66 billion) in 2010.

Non-residential construction, including office space, institutional development and sports/entertainment venues, remains a continued source of strength.  Annual construction spending is currently forecast to increase by nearly 25 percent from 2007 ($8.1 billion) to 2008 ($10.0 billion), and increase again to more than $11.5 billion in 2009.  Notably, this is more than triple the number achieved five years ago ($3.1 billion in 2003).  But in 2010, spending in this category is forecast to drop to $7.1 billion.  While this is a significant decline, the number, if it holds firm, still represents robust activity in this sector.

Looking Ahead
“Much of the funding for near-term government projects, which represent more than half of all construction spending, has been allocated and committed,” said Building Congress President Richard T. Anderson.  “However, it is likely that some portion of these projects will be stretched our or deferred, if fiscal and economic problems worsen.”

Similarly, the report notes that major office tower construction already in the pipeline is likely to sustain current estimates.  In fact, construction has begun on the majority of the 15 office towers factored into the 2009 and 2010 estimates.

The residential sector, according to the report, is the most vulnerable to present market conditions.  Demand for new housing, however, is holding up in New York City, and many projects remain in the pipeline.

Mr. Anderson added, “It is entirely conceivable that any downturn in the construction industry could be short-lived and relatively shallow.  In this scenario, the federal government steps in to ease the credit crunch, preserving thousands of jobs and giving companies the confidence to begin adding more jobs and driving continued demand for office space and housing.  Thanks to recent actions by government, particularly the Bloomberg administration, there are numerous opportunities to build as demand dictates.”

But Mr. Anderson warns, a second scenario involves a prolonged downturn that finds government slashing funding for mass transit, education and other infrastructure projects.  In this scenario, New York City’s next leaders could adopt a more anti-development stance, making it harder for the private sector and major educational, health and cultural institutions to realize their expansion plans.  This would signal an end to New York’s construction boom and potentially usher in a period of slow growth for New York City’s economy and the building industry.

Mr. Anderson concluded, “Which scenario is realized depends largely on the state of the local and national economy, and actions by government and the industry itself.”

RECOMMENDATIONS

The New York Building Congress, in its report, recommended the following steps to ensure that New York City builds for growth, in good times and through down cycles:

• Identify and implement dedicated sources of funding for the Metropolitan Transportation Authority’s capital program.

• Affirm and extend other dedicated sources of revenue for capital budget priorities.

• Government must be an ally, rather than a hindrance, as major institutions move forward with critical expansion plans.

• The industry needs to work cooperatively with government in coming to grips with the rising cost of construction in New York City.

• The next Mayoral administration needs to extend the successful strategy of the Bloomberg administration to strategically rezone neighborhoods.

The New York Building Congress prepared Construction Outlook with the assistance of Regina B. Armstrong of Urbanomics, an economic consulting firm.  It incorporates reviews of private construction data as well as public capital budgets and plans at the City, State and Federal levels.  The full report can be viewed at http://www.buildingcongress.com.

The New York Building Congress is a membership coalition of business, labor, association and government organizations promoting the design, construction and real estate industry in New York City.