Construction spending in New York City is expected to top $17.8 billion in 2001, a 23 percent increase from 2000 ($14.5 billion), and is expected to remain at near record-setting levels in spite of a weakening national economy, according to New York City Construction Outlook, a report on public and private construction activity released in October by the Building Congress. Although the report was prepared prior to the eventsof September 11, preliminary analysis shows that current levels of construction activity can still continue over the next several years.

“Despite definite signs that the national economic downturn has finally reached New York City, building industry officials continue to witness dramatic increases in residential, office, commercial and institutional development, as well as public infrastructure investment,” said Building Congress President Richard T. Anderson. “With demand for 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 in the near-term.” He added, “The clean-up and rebuilding efforts at the World Trade Center site, along with a determination in the private and public sectors to make the City better than ever, can mean that construction activity expected in the next few years will take place, even if specific project plans are altered.”

Based upon a review of public capital budgets and private development plans prior to the attacks, new construction of residential and non-residential buildings, as well as public infrastructure and institutional facilities, is expected to remain steady over the next few years; reaching $17.7 billion in 2002, $15.7 billion in 2003, and $14.3 billion in 2004. Because planned public commitments often slip in time frame, it is expected that spending will average out at $16 billion a year through 2004, which is more than 50 percent greater than construction spending in the mid-1990s.

While construction and related design, development and management is helping to bolster the local economy and thus counter the downturn, the current construction outlook is not problem-free. In addition to the uncertainty about what will be done at the World Trade Center site and how that may impact funding of other public and private construction projects, the biggest problem is a product of accelerating demand for labor and materials, which is escalating the cost of construction in New York City. At a time when national building cost indices are reporting less than a three percent annual rise, the Building Congress report estimates that local construction costs are rising 10 percent annually.

New York City’s construction industry employment reached record levels in 2001 with 130,000 jobs reported in general contracting, special trades and heavy building (additional construction workers on public agency payrolls could not be included in these totals). While construction labor totals increased by 16,000 jobs over the past two years, the Building Congress projects that industry employment will remain stable through 2004.

“Despite recent increases in the labor pool, the actual need for construction workers in 2002 could still outstrip supply by more than 30,000 workers,” said Anderson. “This scarcity in available labor threatens to dampen future construction levels through decreased productivity caused by job delays and rising project costs through increased overtime costs.”

Material shortages have produced price spikes in steel, masonry, pre-cast concrete and other commodities. The absence of manufacturers to supply essential materials such as wallboard, sheet metal and electrical goods also have led to recent job delays. The report does note that these shortages could ease due to a nationwide construction slowdown and the ability of
contractors to import larger quantities of structural materials from Mexico and Canada.

Among the report’s other findings:

• Residential construction in New York City is estimated to exceed 16,000 units in 2001, up from 15,000 in 2000, and just over 12,000 in 1999. With residential vacancy rates hovering at three percent, ongoing population growth and zoning changes to permit more high rise development, the demand remains intense. While residential construction is more than three times higher than in 1995, affordable housing construction continues to lag behind, and all new housing falls short of the minimum need of 20,0000 units per year.
• The Building Congress expects non-residential construction in New York City to exceed 19.7 million square feet in 2001, up from 12.5 million last year and 5.4 million in 1995. Nine major office developments currently are under construction in Manhattan and expected to deliver nine million square feet of space in 2001 and more than 12 million square feet from 2002-2004. This is in marked contrast to the prior four years (1997-2000) in which only three million square feet of office space was built in Manhattan.

“While the City’s building industry is not totally immune to the effects of corporate layoffs, steep reductions in year-end bonuses and a weak global market, it has remained ahead of the curve,” added Anderson. “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.”

The report was prepared by the New York Building Congress with the assistance of Urbanomics, an economic consulting firm. An update to the report that will address changes spurred by the September 11 terrorist attack is being planned for early 2002.

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.