2006-2008 Construction Outlook

Robust
building activity
citywide is
expected to
continue through
2008 and significantly
change the face
of the City’s
built environment.

 

 

 

 

Record
Construction
Spending Continues –
No Decrease
in Sight

The years 2006
through 2008
will see unprecedented
construction
levels resulting
in the strongest
of the six Outlook
forecasts released
to date, and
significantly
exceeding record
construction
activity achieved
in 2005. Most
notably, residential
construction
is expected
to remain strong
throughout the
period while
the previously
flagging office
construction
sector continues
its remarkable
turnaround.
Much depends
on the full
funding of public
capital plans
which represent
a significant
portion of the
forecast.

Construction
spending reached
a record $18.8
billion in
2005 and is
expected to
reach $20.8
billion by
the end of
2006 and exceed
$21 billion
in 2007 and
2008. Much
depends on
the ability
of major public
agencies to
fully fund
their capital
programs.

After a banner
year in 2005,
during which
$18.8 billion
was spent on
construction
in New York
City, spending
is expected
to reach $20.8
billion in 2006
and exceed $21
billion in 2007
and 2008, if
all planned
spending occurs.
Fueling this
growth is the
continued demand
for 30,000 housing
units per year
representing
annual spending
of roughly $5
billion. In
addition, significant
office construction
representing
10 million square
feet of new
floorspace,
is expected
to push annual
non-residential
construction
to over $4 billion.
Major office
buildings under
construction,
such as the
Bank of America
tower and Goldman
Sachs, account
for about 75%
of the City’s
total office
development.
Citywide, 11
office buildings
will be in construction
in 2006 (up
from eight in
2005). Looking
ahead, seven
office buildings
are forecast
for 2007 and
five in 2008.
The completion
of 7 World Trade
Center and progress
with other towers
proposed for
the site is
a favorable
indication that
this forecast
will be achieved.

Major office
buildings
under construction
account for
about 75%
of the City’s
total office


development
Citywide;
11 buildings
will be in
construction
in 2006, with
seven buildings
forecast for
2007 and five
more expected
in 2008.

Based on the
latest multiyear
capital plans,
public construction
spending in
the City is
projected to
increase from
$9.7 billion
in 2005 to $13
billion by 2008.
With fluctuations
in the construction
budgets of the
Metropolitan
Transportation
Authority (MTA)
and other public
agencies and
authorities,
the capital
budget of the
City of New
York will account
for most of
the strong outlook
from 2006-2008.

Challenges

Increasing
Costs

The World Trade
Center Memorial
project was
the subject
of much debate
recently about
ever-increasing
construction
costs and burgeoningproject
budgets. The
particular challenges
of that project
aside, New York
City has experienced
larger increases
in construction
costs than any
other U.S. city.
From 1979 through
2005, construction
costs increased
by 300%, significantly
more than cities
like Boston
(175%), Los
Angeles (130%)
and Dallas (95%),
and rose by
nearly 6% in
2004 and 9%
in 2005. In
2006, the City’s
construction
costs are increasing
at a rate of
about 1% per
month, adding
to uncertainty
about the timelines
and funding
of projects
large and small.

The
strong
residential
construction

market,
representing
annual
spending
of

roughly
$5 billion,
is expected
to continue


through
2008
with
demand
for

30,000
housing
units
per
year.

The costs of
such essential
building materials
as concrete
and steel have
risen significantly.
Exacerbating
these costs
is the price
volatility of
fuel and other
commodities,
the limited
number of contractors
qualified to
supply certain
materials, escalating
land costs,
expanding environmental
regulations
and land use
review procedures,
and conflicting
or overlapping
construction
schedules for
major ongoing
and planned
projects. In
Lower Manhattan,
efforts are
underway to
coordinate deliveries
of supplies
needed for the
myriad projects
planned for
that area. Officials
at the Lower
Manhattan Construction
Command Center
are examining
innovative delivery
methods in a
quest to overcome
logistical challenges
as well as surging
demand for construction
materials and
equipment.

Renewed
development
interest
in major
office
buildings
represents
10 million
squarefeet
but
the
diverse
portfolio
of non-residential
construction
in New
York
City
through
2008includes
sports
and
entertainment,
education,hospital
and
other
commercial
facilities.

These challenges
are mirrored
in neighborhoods
throughout New
York City. With
major developments
and infrastructure
improvements
planned in all
five boroughs,
projects like
Hudson Yards
and East Side
Access in Manhattan,
Yankee Stadium
in the Bronx,
Atlantic Yards
in Brooklyn,
Newtown Creek
Wastewater Treatment
Plant and Mets
Stadium in Queens
and the Homeport
on Staten Island,
in addition
to renovations
and expansions


of universities,
museums, hospitals
and transit
systems, are
creating a kind
of construction
perfect storm.

It is encouraging
that public
officials and
industry leaders
seem to agree
that the City’s
construction
costs and construction
commitments
require urgent
attention and
must be adeptly
managed. For
now, they are
committed to
moving forward
with these grand,
City-shaping
initiatives
and are joining
efforts to devise
creative solutions
before projects
are threatened.

Public construction
in the City
is expected
to reach $11.6
billion by
year end 2006
and

increase to
$13 billion
in 2008, if
all planned
spending occurs.
The capital
budget of
the City of
New York accounts
for most of
the strong
outlook.

Skilled
Labor and Professionals


Heightened construction
activity in
2006-2008 clearly
will raise employment
levels but,
due to the emphasis
on public spending,
the full impact
of the job increase
will not be
reflected in
private payrolls.
Still, private
construction
employment in
the City is
expected to
peak at near
record levels
of nearly 118,000
in 2006 before
falling slightly
to 113,400 in
2007 and 109,300
in 2008.

Questions persist
about whether
the private
construction
labor force
will be able
to accomplish
all that is
planned during
the forecast
period and what
the impact might
be of greater
numbers of non-union
and undocumented
workers. Recent
calls to change
federal immigration
standards, eventually,
may add to the
payrolls of
both union and
non-union firms.
However, many
of these workers
will need training
to safely contribute
to the skilled
workforce necessary
for the complex
infrastructure
and development
projects planned
for the next
few years and
beyond. Apprenticeship
programs incorporated
into many of
the larger projects
and supported
by organizations
such as the
Construction
Industry Partnership
and Non-traditional
Employment for
Women, will
help provide
a stream of
qualified workers
to replace those
reaching retirement
age. Furthermore,
recent project
labor agreements
indicate that
labor unions
are more willing
to adopt progressive
work rules which
can increase
productivity
of existing
workers.

Available
Funding

The funding
of proposed
public infrastructure
projects by
New York City
agencies and
State authorities
remains a critical
element of the
forecast. The
City’s
$15 billion
2006 Capital
Plan represents
the largest
portion of public
construction
spending. The
Plan focuses
on educational
and environmental
protection facilities
such as new
and renovated
schools and
construction
at water and
wastewater treatment
plants. While
most environmental
work is City-funded,
substantial
capital for
education improvements
must come from
other sources
where funding
is still not
assured.

While most
environmental
work is City-funded,
substantial
capital for
education improvements
must come from
other sources
where funding
is still not
assured.

Recent progress
on several large-scale
public projects
such as expansions
of the Javits
Convention Center
and the #7 subway,
and construction
of a new trans-Hudson
passenger rail
tunnel are encouraging.
All indications
are that public
entities will
meet their construction


commitments
but concerns
about the debt
capacity and
long-term fiscal
conditions of
City government
and the State
authorities
remain.Consequently,
as was noted
in previous
Outlook reports,
the future of
public infrastructure
investment in
New York depends
upon the further
expansion of
the City’s
economy and
the creation
of ongoing dedicated
financing for
capital spending.

Achieving
the Outlook

The economic
indicators for
construction
activity and
employment through
2008 are so
strong as to
preclude a significant
decline in the
forecast period.
The continued
strength of
the residential
construction
market is extraordinary
and augers well
for the City’s
ability to maintain
momentum. While
office construction
is not as robust,
it is still
notably higher
than previous
years and expected
to grow. What’s
more, the strong
activity extends
to the institutional
and infrastructure
sectors, indicating
commitments
to large, multi-
year construction
projects. What
remains to be
seen is if the
demand and supply
of skilled labor
and vital construction
materials can
be balanced,
and the extent
to which inflationary
pressures and
increased overall
costs may dampen
the enthusiasm
of developers
and threaten
funding for
public projects.

A Citywide
focus on stimulating
private development
and stabilizing
public capital
spending is
essential to
provide a predictable
flow of new
construction,
without cyclical
price spikes
and unevenness,
and to deliver
necessary material
and labor resources
without interruptions.
Recent efforts
by the City
of New York
to pursue a
long-term development
strategy, including
re-zonings,
tax incentives
and other initiatives
that secure
continuing investment
in areas like
Lower Manhattan
and the Hudson
Yards, are positive
signs. But more
dedicated infrastructure
funding is needed.
New York City
is within one
of the largest
construction
booms in its
history. The
forecast is
bright indeed
but full realization
depends on the
collaborative
efforts of the
public and private
sectors to meet
the challenges
of rising construction
costs, funding
uncertainties,
extraordinary
demands on skilled
labor and professionals,
and the complications
of such frenetic,
simultaneous
activity Citywide.

Regardless,
the extraordinary
level of proposed
construction
spending in
the comprehensive
development
and capital
plans of government
and private
organizations
foretells intense
design, construction
and development
activity in
the City of
New York at
least through
2008.