About Construction Outlook

However, the outlook for 2004-2006 is somewhat guarded. A pull-back is expected in private office and other non-residential construction, which has slowed in response to the jobless recovery. There are promising indications of new job growth for New York City, but net gains will not be large over the next few years and construction is considerably lagging behind expanding employment. Some moderation in residential development can be expected, but housing construction will remain a strong sector over the next few years. Public spending will not rise as fast as in the recent past, due to local government budget deficits and cutbacks in capital spending.

Despite great uncertainty, there are many positive signs for potential construction through 2010. There is little doubt that significant construction will occur in Lower Manhattan. New York City is also a viable candidate for the 2012 Olympics, which will necessitate billions of dollars in new construction. Neighborhoods such as Long Island City and Downtown Brooklyn are poised for significant business development. And residential demand shows no signs of abating any time in the near future.

Issues Raised by the Outlook

Although 2003 will close out as a banner year in construction spending, with nearly $17 billion in residential, non-residential, and public sector outlays, the outlook for 2004 is $15 billion, down 10% from 2003, followed by $14.8 billion in 2005. Accelerated activity in Lower Manhattan will close some of this gap by 2006, when spending is expected to rebound to $15.8 billion. Much depends upon the infrastructure contribution of major public agencies, which are experiencing debt crunches, federal funding uncertainties, and operating demands for scarce resources.

Infrastructure Funding

Now is the time to institute dedicated infrastructure funding that relies on predictable revenue streams and to pursue a Citywide development strategy that focuses on specific areas Lower Manhattan and Hudson Yards. Heavy dependence upon borrowing for capital expansion places inordinate burdens on operating expenditures of public agencies. Subsidies are necessary for infrastructure investment but they need to be dedicated from reliable income sources, such as tolls or environmental surcharges. A Citywide strategy to coordinate the flow of private non-residential development is also essential in order to provide the real estate market with a predictable flow of new floor space, without price spikes, and todeliver the necessary material and labor resources, without shortages.

Insurance Availability and Rates

Since early 2000, all segments of New York’s construction industry have been adversely affected by the worsening trends in the U.S. insurance industry, which have included: sharp rises in premium costs and retention for all lines of insurance; and reduced capacity in the industry, which has made insurance more difficult as well as costly to obtain.

Of particular concern has been the availability of affordable terrorism insurance, since New York City is rated as one of four cities in the ‘Tier 1’ category of high level risk. However, by the waning months of 2003, the rising costs of this ‘hard market’ appear to have reached a plateau for most segments of the property and casualty market.

Proposed Projects That Could Alter the Forecast

A New York City Sports and Convention Center, which would be home for the New York Jets, is currently under consideration by City and State officials, who would jointly fund the project’s estimated costs. The stadium includes a major expansion of the Jacob K. Javits Convention Center as well as redevelopment of the Hudson Yards/Far West Midtown area. The extension of the No. 7 subway from Times Square to serve this development, which
is expected to cost the City $2.2 billion, will likely start within the 2004-2006 timeframe.

City and State officials are also considering government support for Forest City Ratner’s Nets arena project, to be constructed above the Long Island Rail Road yards near the Company’s Atlantic Terminal and shopping complex now underway. If public funding and approvals could be expedited for both projects, pre-construction work on the two sports facilities would clearly benefit the near-term outlook.

Further north, Columbia University is averaging 1 million square feet of new construction every five years and is one of the top builders in New York City. However, space shortages on campus have spurred the University to develop new expansion plans. The University’s Manhattanville/West Harlem Campus, consisting of 1 million square feet of new and renovated space, is expected to begin within the next five years, assuming City and Community Board approval is obtained. The completed development would represent a $3 billion investment in New York City and generate $1 billion in economic activity each year.