The Latest on Rising NYC Construction Costs
New York City faces a mixed bag of current markers in the world of residential and commercial construction activity. In some ways, it's good news that the rate of cost increases is slowing. But costs are up once again throughout the city's five boroughs. If that's no surprise to you, the good news may be that the 2016 rate of increase was approximately 4 percent, pretty much in line with the average 3-4 percent increase in 2016 in major markets across the nation.
Now that the preliminary figures are in, what does it all mean?
New York building executives -- interviewed for the Construction Update prepared by the New York Building Congress -- foresee about the same rate of increase, about 1 percent per quarter, for the balance of 2017. That offers some relief from the 5 per cent annual cost hikes experienced in 2013, 2014 and 2015. During those years, the nationwide averages were between 2.5 and 3 percent.
A decade ago, during the height of the U.S. building boom, cost increases climbed to about 6 percent nationally. At the same time, New York City was experiencing double-digit increases -- 12 percent in 2006 and 11 percent in 2007. The aftermath of the Great Recession slowed the climb, but costs began to rise again in 2010.
High Demand = High Costs
The market is "robust" across all types of construction, according to Carlo Scissura, New York Building Congress President and CEO. He notes that the high level of activity across the board tends to stretch the labor force and boost the need for overtime. It also allows contractors to pick and choose their projects. It's good for business, but is a major driver for higher costs, he notes.
What holds those cost hikes in check is the "relatively flat" price of construction materials and the growth of the non-union and open-shop labor pool. In addition, although residential construction is still "a steady source of work" for New York's contractors, new office construction and commercial building has overtaken residential as the prime market segment.
The residential market is expected to slow somewhat as a reaction to the uncertainly of the city's 421a tax incentive program, which may seriously affect the production of new affordable housing. Evidence of high-end apartment and condominium construction-stalls can be seen throughout the city, although a pro-growth attitude persists and overall sales have been strong.
Recent international events have slowed the ultra-luxury market: Brexit, falling oil prices and new China policies on capital transactions, among others, have had a noticeable effect. Whether the $10-million plus market will rebound remains to be seen. But demand in the $3 million and under residential segment still seems healthy. Some real estate analysts expect a continuing moderate slowdown, but no one just yet has even suggested a free-fall.
Office Construction Outpaces Residential
Cost acceleration is most evident, according to the report, in the office sector, enjoying a current spike in activity. Ground-up construction as well as building renovations, custom finish-outs and build-to-suit projects are especially prevalent. New York office costs are more than 20 percent higher than Boston, the nation's next "leading contender." Overall cost per square foot in New York is $550. On a per-square-foot basis, hospital costs are the highest, "followed by university buildings, five-star hotels, and office space," according to current data.
New York City building costs still are the highest in the country, based on average per-foot costs. That places the city significantly above comparable construction costs in Chicago, Los Angeles, Washington, D.C., and Boston. San Francisco, however, runs a close second in most categories, and actually reports higher costs in the single category of multi-family apartment buildings.
Compared to other cities internationally, New York has become increasingly expensive, part of it due to the weakened rate of exchange of many foreign currencies. 2017 likely will not see any drastic spikes in costs, but it will serve residential buyers and commercial investors well to monitor the market as it changes.