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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.
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