City construction set for record levels, says NYBC.

Total construction spending in New York City is expected to reach a record $19.9 billion in 2005, according to New York City Construction Outlook, an annual forecast and analysis prepared for the New York Building Congress. The report was released today at a Construction Industry Forum featuring Bronx Borough President Adolfo CarrioIn, Jr. and New York City Economic Development Corp. President Andrew Alper.

The $19.9 Billion forecast represents a 20.2 percent increase from 2004 when citywide construction spending reached $16.6 billion. Last year's numbers were in line with 2003 construction spending of $16.7 billion, thanks to a 23 percent increase in residential construction and a four percent increase in public construction spending, which offset a $1 billion, or 20 percent, drop in non-residential construction. The non-residential sector consists primarily of commercial office construction, as well as spending by private institutions, such as hospitals and private universities.

The Building Congress report, based on an analysis of capital budgets, private sector development plans and other indicators, forecasts construction spending of $20.3 billion in 2006 and $18.6 billion in 2007. The report attributes the dramatic increase in activity to continued strength in the residential sector, as well as a rebound in commercial construction in response to rising employment (see page two for a breakdown by sector).

"Overall, the New York City construction industry not only survived but actually thrived over the past few years, despite periods of recession, high unemployment and budget deficits in City Hall and Albany," said Building Congress Chairman Frank J. Sciame. "If current indicators hold true, we anticipate overall construction spending levels to be twice that of just ten years ago."

Given that more than half of the City's construction spending is devoted to the maintenance and development of public infrastructure, such as mass transit, public schools, bridges, roads and tunnels, one area of concern is the availability of funds to finance the capital budgets of New York City and State agencies and authorities.

Added Building Congress President Richard T. Anderson, "While there is much room for optimism, financing uncertainties, primarily in the public sector, persist. Of particular concern are funding limitations in the Metropolitan Transportation Authority's current five-year, $27 billion capital plan and in the plans of the New York City School Construction Authority, which expects to spend nearly $3 billion annually through 2007. An inability to dedicate new sources of revenue to help reliably fund these and other programs could have a significant negative impact on citywide construction spending and employment."

A sizable increase in private construction employment is expected in 2005, after three years of declining jobs in the industry. Private construction employment, a category that excludes construction jobs on public agency payrolls, fell to 107,300 in 2004, which is down from a record-setting 122,000 jobs in 2001. According to Construction Outlook, private sector construction employment will reach 129,000 in 2005 and remain at this level through 2006.

In preparing Construction Outlook, the Building Congress divided activity into three components: residential, non-residential and public construction.

Residential construction spending reached $3.0 billion in 2004. That level of spending produced 25,200 units of housing. It is the first time that the number of new dwelling units surpassed 25,000 since 1972. Barring a dramatic increase in interest rates, residential construction is expected to remain in the 23,000-unit range through 2007.

Non-residential construction--primarily private commercial development--experienced a 20 percent drop, to $4.1 billion, in spending in 2004. After peaking at more than 21 million square feet of non-residential space in 2001, construction in this sector fell to 13 million sq. ft. last year. However, in 2005, a recovering economy and renewed development interest will spur the start of nine new major office buildings, contributing to a total of 20 million sq. ft. of overall non-residential construction this year.

Public construction spending, at $9.4 billion, accounted for more than half of 2004's construction spending in New York City. While spending in this area will not rise as fast as in recent years, infrastructure spending is expected to reach $10.3 billion in 2005, $10.9 billion in 2006 and 2007. Although MTA capital commitments are expected to decline in 2006 and 2007, New York City's capital budget and infrastructure spending in Lower Manhattan will help to increase overall public construction spending. However, the City and State are facing rising debt burdens that may force projects to be extended over time or even canceled.

The New York Building Congress prepared Construction Outlook with the assistance of Urbanomics, an economic consulting firm.