NYC construction spending to top $20b in 2006.

Total construction spending in New York City will top $20 billion for the first time in 2006, and exceed $21 billion in 2007 and 2008, 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 Deputy Mayor Daniel L. Doctoroff.

According to the Building Congress report, which is based on an analysis of capital budgets, private sector development plans and other indicators, total construction spending in New York City will reach $20.8 billion in 2006, an 11 percent increase from 2005, when spending reached a record, non-inflation adjusted total of $18.8 billion.

"This marks the sixth installment in the Building Congress Construction Outlook series and never has the view been so positive. Each sector of the industry is demonstrating considerable strength, and each borough is experiencing considerable construction activity," said Building Congress President Richard T. Anderson. "Given that World Trade Center construction activity won't begin to peak until 2009 and that major development projects such as Atlantic and Hudson Yards are slated to commence in that time frame as well, it is quite possible that the building boom could continue unabated well into the next decade."

The housing sector continues to perform at historic levels. Construction Outlook forecasts an average of $5 billion in spending and 30,000 new units annually between 2006 and 2008, which mirrors housing output for 2005. Just one decade ago, in 1996, the housing construction sector in New York City produced less than 8,700 new units on annual spending of less than $1 billion.

"The continued strength of the residential construction market is nothing short of extraordinary and proving to be much stronger and deeper than perhaps anyone imagined," continued Mr. Anderson. "Despite rising interest rates and higher construction costs, the housing boom in New York City remains alive and well."

With more than 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 largest overall contributor to 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, will reach $11.6 billion in 2006, a 16 percent increase from the $9.7 billion spent in 2005. The report forecasts public construction spending to reach $12.1 billion in 2007 and $13.2 billion in 2008.

Non-residential construction--which primarily encompasses private commercial development and also includes spending by private institutions--remains steady with approximately $4.3 billion forecast for 2006 (up from $4.1 billion in 2005).

The Building Congress forecasts spending in this sector will reach $4.2 billion in 2007 before dropping to $3.47 billion in 2008--although these numbers could rise given the anticipated construction of eight million square feet of new office space at the World Trade Center, the bulk of which will be underway by 2008.

While all indicators are so strong as to preclude a significant decline in the forecast period, the report warns of significant challenges faced by the industry and the City.

Foremost is the rising cost of construction, which historically has impacted New York more than other cities,

Due to rising demand for labor and essential building materials, such as steel and concrete, construction costs currently are increasing at a rate of about one percent per month, accord- ing to the report.

The report also raises concerns about the logistical challenges that lie ahead. As is already happening at the World Trade Center, innovative delivery methods and coordination will need to be established to ensure that operations can be staged and materials delivered efficiently to sites throughout the five boroughs without over-burdening local neighborhoods and businesses.

"With major developments and infrastructure improvements planned in all five boroughs, we are creating a kind of construction perfect storm," noted Anderson. "What remains to be seen is whether the supply and demand of skilled labor and vital construction materials can be balanced, and the extent to which inflationary pressures and increased overall costs may dampen the enthusiasm of developers or threaten to overwhelm the funding for public projects."