NYC CONSTRUCTION SPENDING TO RISE 9 PERCENT IN 2012, ACCORDING TO NEW YORK BUILDING CONGRESS CONSTRUCTION OUTLOOK

New York, October 17, 2012 – Buoyed by increasing demand for luxury housing, ongoing work at the World Trade Center and continued public infrastructure investment, construction spending in New York City is expected to surpass $30 billion for the first time since 2008, according to New York City Construction Outlook 2012-2014, an annual forecast and analysis prepared by the New York Building Congress.   The Building Congress anticipates continued stability for at least the next two years.

The New York Building Congress forecasts a 9 percent increase in overall construction spending, from $28.0 billion in 2011 to $30.7 billion in 2012. Buoyed by increasing activity in all sectors, overall spending has increased nearly 22 percent since hitting a post-recession low of $25.2 billion in 2010.
Construction activity is expected to remain steady in 2013, with projected spending of $30.2 billion—before dropping slightly to $29.1 billion in 2014.

Despite the increase in overall spending, construction employment is forecast to decline slightly – to 110,800 jobs, down from 111,500 jobs in 2011. If realized, this would be the lowest level of overall industry employment since 1998.

“The City’s construction industry has experienced a swift and rather remarkable resurgence. From the recently topped out 1 World Trade Center to the Second Avenue subway below, New York’s private and public sector is investing heavily in its future,” said New York Building Congress President Richard T. Anderson.  “The only disappointment in 2012 is that industry employment has not kept pace with spending due to a number of factors, including a higher prevalence of less-labor intensive construction, improvements in technology and increases in costs.”

NON-RESIDENTIAL
Non-residential construction, which includes office space, institutional development, sports/entertainment venues, and hotels, is forecast to reach an all-time high of $12.6 billion in 2012, up from $10.5 billion a year ago.  This sector has been buoyed by a number of big ticket projects, including 1 and 4 World Trade Center and 250 West 55th Street, as well as Barclays Arena construction and the renovation of Madison Square Garden.

Barring a rapid increase in employment growth in New York City, the forecast envisions declines in this sector as these projects wind down. The Building Congress forecast anticipates for $11.1 billion in 2013 and $8.8 billion in 2014.

“The long-term prognosis for the non-residential sector remains healthy.  Right now, there are approximately 20 million square feet of new office towers that are shovel-ready and can move forward once the economy can support them,” added Mr. Anderson.  “In addition, universities, cultural organizations, healthcare facilities, and other New York City institutions are continuing to invest in the future. In particular, the City is on the verge of a decades-long building boom in higher education, led by Columbia, NYU and Cornell.”

RESIDENTIAL
Construction spending in the residential sector is undeniably on the upswing. Total residential spending is forecast to reach $3.2 billion in 2012, up from $2.9 billion in 2011. The Building Congress forecasts further growth in residential spending—to $4.2 billion in 2013 and $5.3 billion in 2014.  Even with the projected increases, however, New York City remains well below the peak of 2006 and 2007, when more than $6 billion was spent annually on residential construction and 30,000 units were being added to the housing stock each year.

After a three-year period (2009-2011) in which an average of 7,300 new residential units were produced annually, the Building Congress is projecting a total of 10,000 new units will be built in 2012, and even further near-term growth, with 12,500 new units forecast in 2013, followed by 15,000 units in 2014.

New York Building Foundation Chairman Frank J. Sciame noted, “The recent growth in residential construction is largely attributable to and concentrated in the higher-end luxury market, which is experiencing a mini-boom thanks to high international demand and an increasing willingness of banks to provide construction financing for these projects.  The potential exists for even further spending increases if demand continues to rise and financing is made more available for projects across the residential spectrum.”

GOVERNMENT
Government spending, which includes investments in mass transit, public schools, roads, bridges, and other essential infrastructure, is forecast to reach $14.9 billion in 2012, up slightly from $14.6 billion in 2011. Based on a review of agency budgets and projected commitments, the Building Congress estimates expenditures in this sector to remain at $14.9 billion in 2013 and reach $15.0 billion in 2014.

The Building Congress forecasts capital spending by the City of New York to average $8.7 billion annually between 2012 and 2014, which is slightly higher than the prior three-year period, and down slightly from a 2007 peak of $9.3 billion.

The second biggest government spender, the Metropolitan Transportation Authority (MTA), is programmed to invest approximately $3.7 billion annually in the City’s transit system between 2012 and 2014. This represents a 25 percent increase from 2010, though spending remains well below the peak of $5.1 billion in 2008.

“Looking ahead, we are concerned about the prospect of declining government investment beyond the forecast period,” said Mr. Anderson.  “The City’s Office of Management and Budget is currently projecting that construction and design commitments will be cut in half between the current Fiscal Year and Fiscal 2015.  And there are similar questions regarding the next MTA capital plan, which starts in 2015.  Much of the funding for the MTA’s current five-year plan was achieved through increased borrowing. It is unlikely that current levels of investment can be achieved without new sources of dedicated revenue.” 

COST INFLATION TAKES A TOLL
It is important to note that the increasing cost of construction in New York City (as well as nationally) has had an eroding effect on the volume of work delivered. Simply put, one dollar of construction spending does not go as far as it once did.

For example, the Building Congress projects a total of $90 billion in construction spending between 2012 and 2014, which is up from $80.3 billion in the prior three-year period (2009-2011). However, when those numbers are expressed in constant 1995 dollars, total spending for the periods 2009-2011 and 2012-2014 is virtually identical.

RECOMMENDATIONS
In its report, the Building Congress recommended the following steps to spur additional construction spending and employment:

• The building industry and public officials representing downstate commuters must work together to identify additional sources of dedicated revenue to help fund the MTA’s next five-year capital plan, while ensuring that the Regional Mobility Tax remains in place.

• All segments of the design, construction, and real estate industry should work together to ensure that infrastructure investment and the City’s economic future are priorities in the upcoming Mayoral election.

• The City of New York should take steps to assist developers in their efforts to re-start some of the nearly 700 stalled projects throughout the five boroughs.

• The Cuomo administration and the State Legislature should pass legislation enabling local governments to make use of public-private partnerships on major infrastructure projects.

• Government must continue to support major education, healthcare, and cultural institutions that are seeking to expand their facilities and programs.

• The Bloomberg Administration and City Council should continue steps to spur office construction, through rezoning, such as the currently proposed Midtown East plan and other initiatives.

• The City and MTA should speed project delivery and reduce costs using streamlined procurement practices like Design-Build, adopting Building Information Modeling, and eliminating contractual requirements like No Damages for Delay.

The New York Building Congress prepared New York City Construction Outlook 2012-2014 with the assistance 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 New York Building Foundation, which is the philanthropic arm of the New York Building Congress, co-sponsored the report.

New York City Construction Outlook 2012-2014 is available to Building Congress members only. For information on membership click here or call 212.481.9230.

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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.