City construction spending set to hit $25b.

Fueled in large part by demand for office space and government infrastructure investment, total construction spending in New York City reached $24.6 billion in 2006, up 18% from 2005, in which spending reached $20.8 billion, accord ing to a preliminary update of New York City Construction Outlook, an annual forecast and analysis prepared by the New York Building Congress.

In addition, the Building Congress report, which is based on an analysis of capital budgets, private sector development plans and other indicators, projects overall spending to reach $25.6 billion in 2007.

Such increases reflect an environment in which public spending accounts for nearly half of total spending; residential spending is holding steady; and non-residential construction is experiencing large gains.

"New York City construction is on a roll," said New York Building Congress chair man Dominick Servedio. "While a portion of the spending increase is attributable to inflation, the rising costs, at least for now, appear not to be impacting growth. In fact, our analysis paints a portrait of an industry in which all sectors are thriving."

Non-residential construction--which primarily encompasses private commercial development and spending by private institutions--rose from $4.1 billion in 2005 to $7.9 billion in 2006, an increase of 93 percent. The Building Congress forecasts additional gains in this sector in 2007, with spending expected to reach $8.6 billion.

According to the analysis, much of the non-residential spending increase is attributed to large increases in office construction. Additional strengths in this sector include hospitals, laboratories and colleges.

"While we had seen a growing stability in the office construction sector over the past few years, New York City had yet to reach the level of activity experienced pre-9/ 11," said Building Congress president Richard T. Anderson. "These 2006 numbers clearly demonstrate that the office construction market has come all the way back and then some, thanks to a growing economy and years of pent-up demand."

With about half of the City's construction spending devoted to the maintenance and development of public infrastructure, such as mass transit, public schools, bridges, roads and tunnels, the government sector remains the biggest driver of overall construction spending. Spending by New York City and State, the federal government and regional entities, such as the Port Authority of New York & New Jersey, reached $11.9 billion in 2006. The report forecasts public construction spending to reach $12.3 billion in 2007.

The City of New York accounted for nearly half of all government spending in the five boroughs, with the biggest categories of spending being public schools, water and sewer, housing and development, and health and hospitals.

New York City's residential sector continued to defy a nationwide downturn in housing in 2006, during which 30,900 dwelling units were produced. That is down slightly from the 31,450 units produced in 2005.

Another 30,000 units are forecast for 2007. Overall residential spending reached $4.9 billion in 2006 and is expected to reach $4.8 billion in 2007. Just one decade ago, in 1997 the housing construction sector in New York City produced just below 9,000 units.

New York City construction employment reached 117,600 jobs in 2006, up from 110,000 jobs in 2005. Based on projected spending levels, the Building Congress forecasts a rise in industry employment to 123,100 jobs in 2007, which if realized, would surpass the previous high of 122,000 jobs in 2001.

"While there is no fear of any immediate or precipitous drop in construction activity, the bigest concerns moving forward a tightening labor supply and the rising cost of construction," added Anderson. "While it certainly has not happened yet, we may come to a point where inflationary pressures and increased costs finally begin to dampen the enthusiasm of developers and threaten to overwhelm the funding for public projects."

The New York Building Congress prepared the interim Construction Outlook update with the assistance of Urbanomics, an economic consulting firm. It incorporates reviews of private construction data as well as public capital budgets and plans at the City, State and Federal levels.