Charts and Diagrams
Construction spending in New York City is expected to reach $17.8
billion in 2001, a 23% increase from 2000 when spending totaled $14.5
billion. Based upon analyses of public and private capital commitments
and development plans, the Building Congress anticipates construction
spending will remain high for several more years, averaging about
$16 billion through 2004. At that level, the construction outlook
for the near term will be more than 50% greater than volume of the
mid 1990s.
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| Residential construction in New York City is expected to exceed 16,000 units in 2001, up from 15,000 in 2000 and just over 12,000 in 1999. With residential vacancy rates below 3%, population rising, and rezoning encouraging more high rise development, the demand for housing remains strong. Current construction levels are three times higher than in 1995 when little more than 5,000 units were authorized. Affordable housing construction continues to lag behind market rate development, and all new housing construction falls short of the minimum need of 20,000 units per year. | Non-residential construction in New York City is expected to exceed 19.7 million square feet in 2001, up from 12.5 million last year and 5.4 million in 1995. Significant among the major properties currently under construction are 9 major office developments in Manhattan which are expected to deliver 9 million square feet of space in 2001 and more than 12 million square feet from 2002-2004. In the prior four years, 1997-2000, only 3 million square feet of office space was built in Manhattan. |
New York’s construction industry employment reached record
levels in 2001 with 130,000 jobs reported in general contracting,
special trades and heavy building. Construction workers on public
agency payrolls are not included in these totals. With construction
labor expanding by as much as 16,000 jobs over the past two years,
it is likely that industry employment will remain at 130,000 jobs
by 2004. However, based upon projected construction volume, the
need for construction workers in 2002 could well outstrip supply
by 30,000 or more. If this shortfall is not addressed, job delays
and higher overtime costs could dampen the expected level of construction
activity.
With the New York construction cost index rising under 3.25% on
average per year since 1995, costs in the City seem to be in line
with the 3% average annual national increases. However, anecdotal
information, final delivered costs of housing and office construction,
and construction labor payments argue for steeper rates of construction
cost escalation in the New York area. Comprised of a fixed portion
of labor and material inputs, the index cannot factor in overtime,
job delays, higher material transport costs, and related factors
that have pushed the City’s unit construction costs up by roughly
10% per annum over the past few years. On the demand side, a shortage
of office and housing space and a rapidly growing employment market
have pushed vacancy rates down and asking prices up, making higher
construction costs affordable in the near term but less attractive
for the economy over the long run.
Factors that could Alter the Outlook
Is
New York’s economy likely to experience a recession?
The national economy, though technically not in
recession, has been suffering. The City’s economy,
however, has merely slowed in rate of job growth. A
further slowdown may be inevitable but most forecasters are
not predicting New York will experience two
consecutive quarters of decline in real output. Layoffs in
the financial sector, steep reductions in year-end bonuses,
and a weak global market will certainly have ripple effects
on the New York economy. Nonetheless, the building industry
is staying ahead of the curve. By injecting billions of dollars
in investment spending, the industry is stimulating production
and consumption and performing in a counter-cyclical fashion.
The effect of this activity is to give buoyancy to the local
economy, and reinforces the prudent development strategy the
industry has demonstrated in recent years.
How reliable are the construction
spending forecasts?
The construction spending forecasts are built from the capital
commitments and planned expenditures of major public and private
entities. Whereas public commitments
are all linked to identifiable projects, more uncertainty
or unknown development is included in the private sector spending
forecasts. Compared to the 2000 edition of Outlook, the spending
forecasts to 2004 contain lower assumptions of residential
and non-residential development since these sectors, along
with some interior renovations, may be more impacted by a
slowing economy. Residential permits continue to be authorized
at high levels, but slower job growth or lower bonuses may,
eventually, result in less demand for New York apartments.
Still, 12 million square feet of Manhattan office construction
is planned, in large identifiable projects, through 2004.
However, smaller, more speculative projects could well be
postponed.
Is site availability an issue
constraining development?
Despite the perception that there is little room left to build
in New York, a considerable amount of new development can
occur on major sites and on “soft” or in-fill parcels.
A few large areas in Manhattan – the West Side from 23rd
to 42nd, west of 9th Avenue; the Con Edison midtown site east
of 1st Avenue; and Riverside South could accommodate more
than 10 million square feet of housing and 20 million square
feet of office space. In other boroughs, areas like Queens
West, Long Island City and downtown Brooklyn, offer more potential
for residential and institutional space. Long-term development
forecasts for New York City, used for transportation planning
purposes, project that, over the next 20 years, the City will
add 40 million square feet of office space in Manhattan, nearly
20 million elsewhere, and more than 150 million square feet
of other, non-residential floorspace for commercial and institutional
uses.
How can construction material
shortages be ameliorated?
The recent building boom started later in New York City than
elsewhere in the United States. Now, as construction spending
slows elsewhere in response to a slowing national economy,
the demand for building materials is expected to lessen. The
New York area has been particularly hard hit by a tight materials
market since there are so few local manufacturers of high-demand
materials such as wallboards. Since the advent of the North
American Free Trade Agreement (NAFTA), contractors can now
import large quantities of structural materials, such as steel
from Canada, at more favorable prices. With the easing of
demand elsewhere in the nation, and with more imported goods
on the market, more competitive prices and increased supplies
are expected over the next several years.
Will the escalating cost of
construction labor curtail development?
Despite increases in construction labor, shortages still exist
in skilled labor for the building trades. 2002 is expected
to be a banner year for construction spending. At least 30,000
more construction workers are required to meet this level
of activity, if high overtime costs and productivity risks
are to be avoided. The skilled trades, ranging from steamfitters
to electricians, are in particularly short supply. Unions
are concerned that a build-up in work forces could lead to
over-supply and layoffs. But the outlook for construction
spending beyond the next three years remains very positive,
largely due to New York’s stable, long term economic
prospects and the public sector’s 20 year capital investment
plans. If the building trades are not enhanced with young
recruits as a growing number of older workers retire, skilled
work forces will decline just as demands rise. These potential
shortages, and the continuing extensive use of overtime, would
only lead to further cost escalation for building projects
in New York.
The NewYork Building Congress is a non-partisan public
policy coalition of businesses, labor, associations and governmental
organizations representing the design, construction and real
estate interests of more than 150,000 individuals.
The New York Building Foundation was
formed in 1998 to augment the long-term growth and well-being
of the industry through a program of research, educational and
philanthropic activities.
Statistical Data: F.W. Dodge; New York State Department of Labor;
The Port Authority of NY&NJ; Real Estate Board of New York;
Urbanomics; U.S. Bureau of the Census.
About Construction Outlook
Construction
Outlook was prepared prior to the tragic
events of September 11, 2001. The figures represent a baseline
for construction activity through 2004. While it is expected
that the clean up and rebuilding of the World Trade Center area
will increase such activity, the effects cannot be accurately
projected. The Building Congress will produce an update as soon
as the implications become clearer.
New York City’s construction industry outlook through
2004 remains healthy. However, economic uncertainty and increased
costs could alter growth projections over the next several
years.
Record Construction Continues
Strong Demand vs. Supply Constraints
Despite signs that the national economic downturn has finally
reached New York, the City continues to experience record-breaking
levels of construction. From $12.9 billion of construction
spending in 1999, and $14.5 billion in 2000, spending levels
in 2001 are expected to top $17.8 billion. Development in
all sectors – residential, office, other
commercial and institutional, and public infrastructure –
have contributed to the dramatic increase, with public spending
exceeding private investment.
Construction, and related design, development and management
functions, make up one of New York’s largest industries.
With demand for construction labor increasing, design backlogs
shrinking only modestly, and contractors committed to major
projects through 2003, it is hard to see the building industry
as a soft spot in the City’s economy. Rather, the strong
rippleeffect the industry has on local production and consumption
is countering the downturn and buoying the local economy.
The current outlook is not, however, problem free. Accelerating
demand for labor and materials is escalating the cost of construction
in New York. Whereas national building cost indices report
less than a 3% annual rise over the last two years, local
cost estimators are assuming at least a 10% average annual
rise in New York. Scarce labor has led to increased overtime,
while material shortages have produced price spikes in steel,
masonry, pre-cast concrete and other commodities. The absence
of manufacturers to supply enough essential materials like
wallboard, sheet metal and electrical goods has led to job
delays. In the City’s real estate market, extraordinarily
low vacancy rates in office and residential properties have
caused asking rents and resale values to climb, which could
eventually dampen demand for new product.
Despite these cautions, the outlook for construction spending
and employment continues to be very positive over the 2002-2004
period. Based upon a review of public capital budgets and
private development plans – highlighted in the graphs
that follow – new construction of residential and non-residential
buildings, and public infrastructure and institutional facilities,
is expected to remain at $17.7 billion in 2002, leveling off
to $15.7 billion in 2003 and $14.3 billion in 2004. Because
planned public commitments and major private investments often
slip in time frame, particularly given material and labor
shortages, it is possible that spending levels may average
out at $16 billion over the next three years.
