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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.
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